Turkish Central Bank signals unorthodox ways to continue in bid to prop up lira

Turkey's Central Bank has signaled it will continue to adopt unorthodox ways to support the Turkish Lira, while also revising its inflation forecasts upward.
 
The lira has fallen more than 7 percent in 2017, becoming one of the world's worst-performing currencies, amid investors' worries about the Central Bank's independence to avoid taking decisive action to support the lira and tame inflation, and their concerns about the economic slowdown and political uncertainties. 

The bank raised its one-week repo rate on Nov. 25, 2016, for the first time since 2014 but it has remained unchanged since then, as top officials have continuously voiced their opposition to any rate hikes in a bid to boost economic growth. 

Instead, the bank has stopped holding one-week repos and raised overnight and last resort borrowing rates, pushing funding costs for banks higher without having to change the benchmark rate.

"We will continue to use these steps as long as necessary. It should be expected for this framework to continue for a certain time," Central Bank Gov. Murat Çetinkaya said on Jan. 31, as quoted by Reuters.
 
"If no permanent and serious improvements are seen regarding inflation expectations in the foreseeable future, it seems tightening will continue," he told a news conference to announce the bank's quarterly assessment of the inflation outlook.

Despite some concerns in the market, the lira rebounded to 3.8 from a historic low, as many analysts believed that the worst was over for the currency in the short-term and that the bank had taken a number of key steps. 

The bank made uncovered hikes of 200 basis points in recent weeks.

The lender is still aiming to eventually provide funding via a single rate,...