The hike is the latest step to curb soaring inflation that has left many households unable to buy basic necessities.
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Turkey’s central bank today (Thursday, January 25) raised its key interest rate by another 2.5 percentage points, pushing ahead with a series of rate hikes aimed at combating inflation, which reached nearly 65% in December.
The bank raised its base interest rate to 45%. The rate hike is the eighth since President Recep Tayyip Erdogan abandoned unconventional economic policies that economists say triggered a currency crisis and raised the cost of living. Many households struggled to buy daily necessities.
Erdogan has long supported the unconventional policy of cutting interest rates to fight inflation, which runs counter to mainstream economic thinking.
By contrast, central banks around the world have raised interest rates rapidly, targeting soaring consumer prices in the wake of the coronavirus pandemic and the subsequent fallout from Russia’s war in Ukraine.
January rate hike may still not be enough to curb inflation
In Turkey, the central bank said it would “continue to use all tools at its disposal resolutely in line with its primary objective of price stability.”
But analysts say the rate hikes may not be enough to curb inflation. “A cumulative 3,650 basis points of tightening may not be enough to definitively curb Turkey’s long-standing inflation problem,” Bartosz Sawicki, a market analyst at Konotoxia Fintech, wrote in a note to The Associated Press. mentioned in.
He added that the group does not expect further rate hikes ahead of local elections scheduled for March.
“Raising interest rates by 2.5 percentage points to 45 percent is not going to be enough to start lowering inflation in the near future,” said Kagli Kutman, a Turkey market expert at London-based KNG Securities.
Turkey makes hasty U-turn on monetary policy
Turkey’s leader has changed economic policy after winning a third term in power in May. President Erdogan has appointed a new economic team led by former Merrill Lynch banker Mehmet Simsek, who has returned as finance minister.
Former U.S.-based banking executive Hafizeh Gey Erkan became central bank governor in June, becoming the first woman to hold the position in Turkey. During her tenure, her borrowing costs increased from her 8.5% to her current 45%.
Previously, President Recep Tayyip Erdogan had reportedly dismissed the central government for resisting his push to cut interest rates.
Ercan last week denied allegations in a Turkish newspaper that his father had influenced the bank to fire employees, stoking speculation he could be fired.
But President Erdogan this week voiced his support for the central bank governor, dismissing the reports as “unreasonable rumors engineered to destroy the atmosphere of economic confidence and stability that was so hard-won.”
