Turkey’s central bank reverses ‘backdoor’ interest rate rise

Turkey’s central bank has rolled back a “backdoor” interest rate rise used to prop-up the country’s currency, according to reports.

The central bank is funding at its benchmark rate of 24 per cent amid tensions over an election result in Istanbul, the Financial Times reported citing a person familiar with the matter.

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The Turkish lira was down more than one per cent after the reversal, weakening to 5.7120 against the dollar.

In March the central back stopped providing funding through its 24 per cent benchmark due to currency volatility in the lead up to local elections, forcing banks to obtain funding at a rate of 25.5 per cent.

The Istanbul local election result is being disputed by Turkish president Tayyip Erdogan, who said the margin of votes in Turkey’s largest city was too small for opposition party CHP to claim a victory.

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Erdogan said he is seeking a full recount of the city’s votes after his AK Party (AKP) narrowly lost control of both Ankara and Istanbul.

Last year the lira fell nearly 30 per cent against the dollar.