Key Takeaways:
- Turkey’s Central Bank has increased its key interest rate to 25%.
- The hike is more than the 20% that economics expected.
- Following the news, the Turkish Lira has gained slightly against the Dollar and the Euro.
YEREVAN (CoinChapter.com) — Turkey’s central bank implemented a substantial interest rate hike of 7.5 percentage points, increasing its key rate to 25%. The aggressive move comes as a shock to observers, who anticipated a more moderate elevation.
Turkish Lira gained slightly against the US dollar as a result.
While the previous primary policy rate stood at 17.5%, economists expected the Central Bank to increase it to 20%. Moreover, the interest rate hike indicates that Turkey is further away from President Recep Tayyip Erdoğan’s unconventional economic policies.
“The Monetary Policy Committee… decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior,”
the official press release reads.
Turkey Moving Further Away from Erdonomics
Despite the raging inflation in the country, the Turkish President initiated a series of interest rate cuts.
The Turkish central bank had started decreasing rates in late 2021 under Erdogan’s pressure. While Central Banks worldwide increased interest rates, Erdogan considered it “un-Islamic” and insisted on pushing rates down. His critics dubbed this bizarre policy “Ergonomics.”
However, after his re-election in May, Erdogan assembled a new economic team, signaling a return to more orthodox approaches. He even appointed Hafize Gaye Erkan as the first woman to hold the position of central bank governor.
Since Erkan’s appointment, the central bank has increased the key policy rate by 6.5 percentage points to 15% in June and then by an additional 2.5 percentage points to 17.5% in July.
The recent decision to raise borrowing costs comes amidst an inflation rate of 47.83% in July, which peaked at over 85% in October. However, independent economists argue that the actual inflation rate almost reached 123%.
After the announcement, the struggling Turkish Lira strengthened against the US dollar and Euro. When writing, the Lira was up 6.15% against the greenback. Moreover, it strengthened around 6.30% against the Euro, according to Google Finance.
However, only time will show if President Erdogan approves the interest rate hike. Suppose he doesn’t expect a new Central Bank chief soon.
