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Turkey raises rates for first time since 2014 amid lira plunge

A supporter of Turkish President Recep Tayyip Erdogan waves a flag against an electronic billboard during a rally in Kizilay Square on July 18, 2016, in Ankara, Turkey.
Chris McGrath | Getty Images
A supporter of Turkish President Recep Tayyip Erdogan waves a flag against an electronic billboard during a rally in Kizilay Square on July 18, 2016, in Ankara, Turkey.

Turkey's central bank raised its benchmark interest rate by 50 basis points on Thursday, the first increase in nearly three years, as a surging U.S. dollar and domestic security worries batter the lira currency and stoke inflation fears.

Defying President Tayyip Erdogan's repeated calls for cheaper credit, the bank increased the one-week repo rate to 8 percent. It also lifted it overnight lending rate to 8.5 percent, from 8.25 percent.

Twelve out of 19 economists polled by Reuters had expected an increase of 25 basis points in the repo rate, although the bank was widely expected to stay put on the overnight lending rate. It marks the first policy tightening since January 2014.

Enemy of interest rates

Erdogan, who has described himself as an "enemy" of interest rates, saying they curb economic growth, had chastised the bank on the eve of the rate decision.

"I have nothing against the independence of the central bank, but I cannot allow my people's will and rights to be taken away with high interest rates," he said in a speech at the Istanbul stock exchange on Wednesday.

It kept its overnight borrowing rate at 7.25 percent. It uses multiple interest rates to provide funding to the market.

The lira has lost some 14 percent of its value against the dollar this year, hit by both the strengthening dollar and investor concern in the aftermath of Turkey's failed July coup.

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