Turkey’s rate hike will hit demand: Finance Minister

Wednesday, 29 Jan 2014 | 12:08 PM ET
EU to support Turkish growth: Minister
Wednesday, 29 Jan 2014 | 11:30 AM ET
Upcoming elections, monetary tightening and weak domestic demand are downward risks for Turkish growth says Mehmet Simsek, Turkey's finance minister.

Monetary tightening will hit domestic demand, Turkey's finance minister told CNBC on Wednesday, after the country's central bank hiked interest rates to 12 percent.

(Read more: Turkey in massive interest rate hike to defend lira)

"There is monetary tightening — that is the increase in interest rates. In this regard, risks related to growth associated with domestic demand increased. In other words, to be frank, domestic demand will weaken," said Mehmet Şimşek, the Turkish minister finance since May 2009.

Turkey still politically 'stable': Minister
It's too early for a "serious revision" to Turkish growth expectations, as the national elections will highlight the country's political stability, says Mehmet Simsek, Turkey's finance minister.

Late on Tuesday, Turkey's central bank raised its overnight lending rate by a hefty 425 basis points, to 12 percent from 7.75 percent. The move was aimed at shoring up the Turkish lira, which like other emerging currencies and stocks, took a battering last week due to fears about slowing China growth and bond-purchasing tapering by the U.S. Federal Reserve.

Despite his concerns, Şimşek said Turkish growth would be supported by external demand.

"Why? Because (the) EU, our biggest trading partner, is recovering," he said.

India's central bank has also raised rates in response to the EM turmoil and the South African Reserve Bank may follow suit when it meets later on Wednesday.

(Read more: Could South Africa be the next to hike rates?)

—By CNBC's Katy Barnato. Follow her on Twitter: @KatyBarnato

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