Turkey’s central bank hiked its key rate by 650 basis points to 15 percent on Thursday and said it would go further, in a reversal of the unorthodox economic policies of President Recep Tayyip Erdoğan, although the post-election tightening fell short of expectations and the lira fell, Reuters reported.
In its first meeting under new Governor Hafize Gaye Erkan, the bank changed course after years of monetary easing in which the one-week repo rate had dropped to 8.5 percent from 19 percent in 2021 despite soaring inflation.
Analysts said the move suggested Erkan might have limited room to aggressively tackle inflation under Erdoğan’s watch. The median estimate in a Reuters poll was for rates to rise to 21 percent.
Thirty minutes after the hike – Turkey’s first since early 2021 – the lira suddenly began to tumble, hitting an all-time low beyond 24.60 to the dollar.
The central bank’s policy committee said the tightening “will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved.”
Striking a more hawkish tone than a month earlier, it said it raised rates “in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior.”
Annual inflation was just below 40 percent in May after reaching a 24-year high above 85 percent in October last year. The central bank said inflation will come under further pressure.
It added it would gradually “simplify and improve the existing micro- and macroprudential framework” to improve market mechanisms and stability – suggesting some of the dozens of regulations adopted since late 2021 could be rolled back, freeing up credit, forex and debt markets.
