ANKARA, Turkey (AP) — Turkey’s central bank raised its key interest rate by 5 percentage points Thursday, resuming a policy of tightening rates aimed at combating soaring inflation that is causing severe financial pain for households.
In a surprise decision, the central bank said it would raise its benchmark one-week repo rate to 50% after it had been widely expected to keep the benchmark rate unchanged for a second consecutive month ahead of the March 31 mayoral election.
The bank said it decided to raise its base rate “in response to the worsening inflation outlook.”
“The tight monetary stance will be maintained until there is a significant and sustained decline in the underlying trend in monthly inflation,” the central bank said.
Consumer price inflation rose to a better-than-expected 67% in February, leaving many families struggling to pay for food, rent and utilities.
President Recep Tayyip Erdogan has long advocated an unconventional economic policy of slashing interest rates to curb inflation, a theory that runs counter to conventional economic thinking. A series of central bank rate cuts led to double-digit inflation and a currency crisis, but Erdogan reversed course after his reelection in May and appointed a new economic team.
Under the new regime, the central bank raised its benchmark interest rate to 45% in January from 8.5% in June and suspended rate hikes last month.
“Despite declaring an end to the monetary tightening cycle in January, Turkey’s central bank was forced to raise the one-week repo rate from 45% to 50% despite local elections looming,” Bartosz Sawicki, market analyst at Konotkia, said in an email.
Sawicki said rate hikes after the May 2023 election “were insufficient to quickly correct the imbalances that had been cultivated by years of irresponsible and unorthodox policies.”
Turkey’s currency, which has fallen about 40 percent against the dollar over the past year, recovered some following Thursday’s decision.
