Turkish central Bank rose the interest rate to unprecedented level helping Turkish Lira’s improvement

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The Turkish Central Bank decided to raise interest rates to 25%, in a surprising move that marks a turning point in Turkish President Recep Tayyip Erdoğan’s unconventional economic policy, which he pursued after his victory in the presidential elections last May.

The Monetary Policy Committee of the Central Bank of Türkiye announced at its meeting a while ago that it would raise interest rates to 25%, and the 7.5% increase follows an increase of 2.5% last month.

Most economists had expected the bank to raise interest rates to 20% from 17.5%.

In a statement Thursday, the Central Bank of Türkiye’s Policy Committee said it decided to continue the process of monetary tightening in order to determine the course of combating inflation as soon as possible, stabilize inflation expectations, and control the deterioration in pricing behavior.

The Turkish currency jumped against the dollar to reach 25.56 liras per dollar, after the decision of the Turkish Central Bank.

The continuous rising inflation rates prompted the central bank to revise its inflation forecast for the end of the year from 22.3% to 58 percent%.

The Central Bank said Thursday that it expects inflation at the end of the year to remain at the upper end of the expected range.

Inflation has fallen since it peaked at 85% in October 2022, but it jumped from 38% in June this year to nearly 48% in July.

The central bank attributed the rise in inflation to strong domestic demand, pressures on wages and exchange rates, persistent inflation in services and tax regulations.

The Turkish Central Bank statement added that the Monetary Policy Committee expects a decline in the inflation rate next year, in line with its reports and with the impact of monetary tightening steps.

The statement stated that direct foreign investments, the improvement of external financing conditions, the continuous increase in foreign reserves and tourism revenues will contribute strongly to achieving price stability.

The Turkish Central Bank stressed the continuation of strengthening the monetary tightening policy gradually when necessary in order to achieve a significant improvement in inflation expectations.

The Central Bank added that the Committee would continue to make its decisions in a transparent, predictable and data-oriented framework.

Commenting on the Turkish Central Bank’s decision, Turkish Minister of Treasury and Finance Mehmet Şimşek said through his account on X platform, “Determined price stability is our top priority”.

It’s worth noting that the Turkish president has been insisting during the past years to follow the approach of reducing the interest rate, despite the continuous collapse in the value of the Turkish lira and the rise in inflation rates, as he continued saying that he’s fighting “usury” because it contradicts the teachings of religion, and said interest is “the root of all evil,” as these recent measure taken by the Turkish government as proof of Erdoğan’s retreating from his policies.

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