Turkey shocks with big rate hike to 25%, boosting lira
By Ali Kucukgocmen and Jonathan Spicer
ISTANBUL (Reuters) — Turkey's central bank hiked its key interest rate by a larger-than-expected 750 basis points to 25% on Thursday, sparking a rare lira rally and signalling a new determination to address rebounding inflation as part of a broader policy U-turn.
The surprise move leaves the policy rate at its highest level since 2019, and sent the Turkish currency to its strongest level since mid-July. The bank has raised its one-week repo rate by 1,650 basis points since June.
The policy committee — including three members taking part for the first time and seen as having hawkish sway — repeated it would tighten «as much as needed in a timely and gradual manner» to cool inflation, which soared to nearly 48% last month.
Analysts said the move was the clearest step yet toward more orthodox policies after years of unorthodoxy under President Tayyip Erdogan, and should help rein in inflation expectations.
The lira had touched new all-time lows almost daily in recent weeks, including in the minutes before the policy decision. But it jumped more than 3% versus the dollar afterward and was at 26.41 at 1205 GMT.
Turkish bank stocks rallied nearly 10%, lifting the broader Istanbul bourse, while the government's dollar-denominated bonds jumped more than 2 cents according to Tradeweb data.
According to a Reuters poll, economists expected a median hike of 250 basis points, from 17.5% previously, with some even having expected a more dovish move given the bank undershot expectations in the last two months.
The poll, conducted last week, showed that interest rates were not expected to rise to 25% until year end.
The rate hike «sends a very strong signal that the (bank) is determined to
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