The Turkish Central Bank suddenly raises the interest rate to 40%
The decision taken by the Turkish Central Bank, Thursday, to raise the main interest rate to 40%, caused a surprise in the financial market.
This measure comes within the framework of the bank’s attempts to combat inflation and support the Turkish lira, which is witnessing a decline in its value.
This is the fifth increase during the monetary policy tightening cycle, as it caused the cost of borrowing to increase by more than four times.
Although analysts expected a rate hike of 2.5 percentage points, the actual decision was to increase 5 percentage points, which was described by economical experts, as a significant exceeding of expectations.
The Turkish Central Bank indicated that the current level of monetary policy tightening is close to the level required to control inflation, and that the pace of tightening will slow in the near future.
The current interest rate in Türkiye is the highest in the past two decades, and higher than the interest rates in most emerging economies.
Decision makers’ expectations indicate that interest rates will continue to rise at least until the middle of next year, in anticipation of the impact of this step on Türkiye’s economy after implementing unconventional policies that avoid increasing interest rates and emphasize controlling inflation.
