Turkey’s central bank raised interest rates by 5 percentage points to 40% in its ongoing effort to combat skyrocketing inflation, but indicated that the tightening cycle will soon come to an end.
Turkey’s Central Bank Fights Soaring Inflation
In response to double-digit inflation and the resulting financial strain on Turkish households, Turkey’s central bank implemented its sixth consecutive interest rate hike, raising the policy rate to 40%. The country has been grappling with inflation at an alarming 61.36% in recent months.
Shift in Monetary Policy Under New Economic Team
President Recep Tayyip Erdogan’s unorthodox approach of lowering interest rates to combat inflation has faced criticism amid economic instability, including a currency crisis and heightened living costs. However, after his reelection in May, Erdogan appointed a new economic team led by former Merrill Lynch banker Mehmet Simsek as finance minister and Hafize Gaye Erkan, a former U.S.-based bank executive, as central bank governor. The new team has swiftly reversed the previous policy of maintaining low interest rates, with Erkan overseeing a drastic increase in the main interest rate from 8.5% to 40%.