The Turkish Lira has dropped to its weakest level ever against the US dollar, following the central bank's decision to increase interest rates by 650 basis points to 15%. This move was below expectations, as a Bloomberg survey had estimated an increase to 20%. As of 2:35 p.m. in Istanbul, the currency had fallen 2.6% to 24.20 against the dollar.
The decision to raise interest rates was made in order to combat the country's soaring inflation, which reached a 15-year high of 18.6% in August. However, analysts suggest that the smaller-than-expected increase may have the opposite effect, causing further inflation as investors lose confidence in the lira.
Turkey's President, Recep Tayyip Erdogan, has been a vocal opponent of high interest rates, believing that they stifle economic growth. His influence over the central bank has led to concerns about its independence and ability to make decisions based on economic data.
The lira has been under significant pressure this year, with a 40% drop against the US dollar since January. This has been attributed to a number of factors, including political instability, high inflation and tensions with the US over the detention of a US pastor in Turkey.
The Turkish government has introduced measures to try and stabilize the currency, including restricting the use of foreign currencies in certain transactions and increasing tariffs on US imports. However, these actions have not yet had the desired impact.
The central bank's decision to raise interest rates is seen as a step in the right direction by some analysts, but others have expressed concern about the impact of the smaller-than-expected increase. As the situation in Turkey continues to unfold, it remains to be seen what the future holds for the currency and the country's economy as a whole.