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In an emergency midnight meeting on Tuesday, the Turkish Central Bank made a dramatic move
in an effort to bring the Turkish lira up from its record lows against the dollar and
euro.
"Here's what they did. They raised the overnight rate from 7.75 to 12 percent, the primary
dealer rate went from 6.75 to 11.5 percent, the 1-week repo rate went from 4.5 to 10 percent."
(Via NBC)
And the lira did perk up following the announcement — against the U.S. dollar, it went from
2.25 to 2.2, according to the BBC. That's about a 4 percent raise.
It all comes down to foreign investments. The move is intended to make Turkey look more
appealing to investors by offering larger return rates, thereby bolstering the value
of the Turkey's economy.
The New York Times writes, "Turkey is battling a crisis of confidence in the global markets."
Turkey is competing with other countries for investments, and as the U.S. and U.K. economies
get stronger, other countries suddenly seem more risky.
Turkey is a member of what economists have nicknamed the "fragile five." Turkey, Brazil,
India, South Africa and Indonesia have "economies that have become too dependent on skittish
foreign investment," according to Business Insider.
Turkey's play could have a long-term positive effect on many other emerging markets if it
is successful, according to The Wall Street Journal. Fox Business reports a bump in markets
around the region following Turkey's announcement.
fox business
"It's as though the expectation that other central banks will follow Turkey's lead has
certainly given the market back its risky appetite, so we say great gains today."
Turkey's economic policy is convoluted and tied closely with politics. Prime Minister
Recep Tayyip Erdogan, who is knee-deep in a corruption scandal, has opposed rate hikes.
He is facing an upcoming election later this year.