Turkey’s central bank unleashes a big interest rate hike in another sign of an economic shift
Turkey’s central bank has raised its key interest rate by an aggressive 7.5 percentage points, in a new sign of a return to more traditional economic policies
ANKARA, Turkey — Turkey’s central bank raised its key interest rate by an aggressive 7.5 percentage points on Thursday, a larger-than-expected boost that offers a new sign of a return to more traditional economic policies under President Recep Tayyip Erdogan.
The bank hiked its policy rate to 25% as it continues to backtrack from a rate-cutting course set by Erdogan, which has been blamed for inflaming a cost-of-living crisis. Many households have been left struggling to afford rent and basic goods as inflation has surged.
The increase “will go a long way towards reassuring investors that the shift back to policy orthodoxy is on track,” London-based Capital Economics research firm wrote in an analyst note.
It called the move a surprise as most analysts expected a much smaller bump in borrowing costs.
“As far as Turkey’s macroeconomic outlook is concerned this could be a game-changer,” the firm said.
Erdogan has long argued that lowering interest rates helps fight inflation, a theory that runs contrary to traditional economic thinking.
Central banks around the world have been hiking rates to bring consumer price rises under control following the COVID-19 pandemic and Russia’s war in Ukraine. The Turkish central bank, however, started cutting rates in late 2021 under pressure from Erdogan.
After winning reelection in May, Erdogan appointed a new economic team, signaling a return to more conventional policies.
The team includes former Merrill Lynch banker Mehmet Simsek, who returned as finance minister, a post he held until 2018, and Hafize Gaye Erkan who took over
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