ANKARA: The Turkish central bank on Thursday hiked interest rates for the second time in two weeks, prompting the lira to rally strongly with elections on the horizon.

The 125 basis point (bps) headline interest rate hike comes after the bank raised its emergency rate by 300 bps on May 23.

On Thursday the bank said it would raise the one-week repo rate to 17.75 percent from 16.5 percent, after a monetary policy committee (MPC) meeting.

The hike was higher than the market consensus of 50 bps.

The one-week repo rate has been the bank’s policy rate since June 1, after a long-awaited overhaul of its interest rates. The lira surged after the bank’s announcement at 1100 GMT, gaining 1.5 percent against the dollar to reach 4.47 at 1330 GMT, after record lows last month.

Before the bank’s move, the lira was at 4.58 against the greenback. Since January, the lira has lost over 18 percent against the dollar and over six percent in the past month.

The hikes come despite repeated calls for lower interest rates to stimulate growth by President Recep Tayyip Erdogan, who has called interest rates the “mother and father of all evil”. Turkey’s economy grew by 7.4 percent in 2017.

Erdogan also spooked investors last month after he signalled he wanted to take greater control over monetary and economy policy if he wins the June 24 elections.

But Inan Demir at Nomura International said in a note that the bank’s recent moves including the hikes went “some way to helping the (central bank) rebuild its credibility” after investor concerns over monetary policy.

The hike is the bank’s third such move since April 25 when the bank raised one of its then main interest rates by 75 basis points.

Markets hoped for a rise after the inflation rate jumped in May from 10.85 percent to 12.15 percent from the same period last year.—AFP