Then-U.K. Chancellor of the Exchequer Norman Lamont at a news conference on Black Wednesday, Sept. 16, 1992. That’s a young David Cameron, a Lamont aide and the current U.K. prime minister, looking on in the background.
Traders saw the hikes for the desperate measures they were, unjustified by Britain’s underlying economic fundamentals. They continued to sell the pound, eventually forcing the government to give up the fight and return the official interest rate to 10%.
The pound fell sharply and Britain dropped out of the ERM, leaving Prime Minister John Major’s government thoroughly humiliated. Soros, who had placed huge bets against the pound, was said to have made around $1 billion in the episode and became forever known as the man “who broke the Bank of England .”
Turkey’s central bank late Tuesday hiked its one-week repo rate to 10% from 4.5%, boosted its overnight lending rate to 12% from 7.75% and lifted its overnight borrowing rate to 8% from 3.5%.
The lira, which had plunged more than 11% versus the dollar since the beginning of January, quickly rallied. But gains were fleeting . The lira is back under pressure, with the dollar buying 2.2394 lira USD, up from 2.1755 in the aftermath of the rate hike. Now what does Turkey do next to save its face? Trying to save the currency without changing the fundamentals will result in such situations, And you cannot change them over night.