How will Turkey be affected by new interest decision of FED?

The US Central Bank (FED) will announce its interest rate decision at 21:00 TSI this evening. The boss of the dollar is expected to go for a 50 basis point interest rate hike for the first time in 22 years. Wanting to curb inflation, the Fed also wants to avoid causing a sharp slowdown in the economy. The bank, which started raising rates on March 16, 2022 by 25 basis points, is expected to go for a 50 basis point rate increase today. If it happens as expected, there will be an interest rate increase at this level for the first time after 2000.

The Fed had made an interest rate hike for the first time in 3 years, and raised the federal funding rate from the range of 0-0.25 percent to the range of 0.25-0.50 percent on March 16, 2022, thus increasing rate for the first time since November 2018.

Since the dollar is the number one reserve currency in the world, the interest rate and amount of the dollar also affect the whole world. US Treasury bond rates have also increased rapidly recently due to rising inflation and aggressive interest rate increases expected from the Fed. The interest rate on US 10-year Treasury bonds exceeded the rate of 3 percent this week for the first time after a period of more than three years. This rate had declined to 0.6 percent levels in mid-2020. There have also been rapid interest rate increases in Treasury bonds in other maturities recently. The dollar index, which is used to measure the global value of the dollar against other major currencies, also reached 103.9 last week, rising to its peak in the last 20 years.

HOW WILL IT AFFECT TURKEY?

The increase in the interest rate of the dollar and the appreciation of the dollar make it more expensive for countries with high foreign debt and high current account deficits, such as Turkey, to turn over these debts and finance their current account deficit.
Ankara, which is trying to curb exchange rates with the sale of reserves and currency-protected deposits that impose a burden on the budget, is also finding it increasingly difficult to do its job due to the strengthening of the dollar and low reserves.

INCREASE IN EXCHANGE RATES MAY CAUSE HIGHER INFLATION

The possible increase in exchange rates may cause the official consumer inflation, which has already exceeded 61 percent in March and is expected to approach 80 percent in May, to rise even higher.

Source: sozcu.com.tr/2022/ekonomi/gozler-fedde-dolarin-patronu-22-yil-sonra-bir-ilke-hazirlaniyor-7114104/