Turkey hikes interest rates in another sign of economic normalcy. But markets expected more
Turkey’s central bank has raised its key interest rate in another sign of commitment to a traditional path of battling inflation
ISTANBUL — Turkey’s central bank raised its key interest rate Thursday, another sign of commitment to a traditional path of battling inflation but still falling below expectations after critics blamed President Recep Tayyip Erdogan’s economic policies for inflaming a cost-of-living crisis.
The 2.5 percentage point hike — putting the rate at 17.5% — came a month after the bank unleashed a 8.5% increase, a reversal after more than a year of rate-cutting prompted by Erdogan.
He believes lowering interest rates fights inflation, contradicting traditional economic theory that says the opposite. Central banks around the world have been hiking rates rapidly to battle spikes in consumer prices following the pandemic and Russia's war in Ukraine, but Turkey's bank started cutting rates in late 2021.
Since winning reelection in May, Erdogan has signaled a return to conventional policies by appointing two internationally respected economists to key positions.
Former Merrill Lynch banker Mehmet Simsek returned as finance minister, a post he held until 2018, while Hafize Gaye Erkan took over leadership of the central bank, the first woman in that position. She was previously co-chief executive of the now-failed San Francisco-based First Republic Bank.
Inflation in Turkey came in at 38% last month, down from an eye-watering high of 85% in October. Amid mistrust over official data, independent economists say inflation actually sits at 108%, leaving households struggling to afford basics like food and rent.
The central bank said it would keep raising borrowing costs “as much as needed in a timely and gradual
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