- The move represents a 500 basis point jump from the previous month, as Ankara continues to battle double-digit inflation.
- The central bank’s decision follows a series of interest rate hikes that have been painful for Turks, as the country aims to overcome several years of high inflation and a significantly weak currency.
- The lira has fallen by 30% against the dollar since the beginning of the year, and has lost 78% of its value against the dollar in the past five years.
Taksim Square in Turkey, with a portrait of Kemal Ataturk, the first president, and the Turkish flag in the background.
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Turkey’s central bank raised its key interest rate to 30% on Thursday, a 500 basis point jump from 25%, as Ankara continues to battle inflation exceeding 10%.
The Turkish lira fell slightly to 27.06 against the dollar on this news, with the US currency rising 0.3% against the local currency at 2:05 pm in Istanbul.
The central bank’s decision follows a series of interest rate hikes that have been painful for Turks, as the country aims to overcome several years of high inflation and a significantly weak currency – largely due to stubbornly loose monetary policy by the Ankara government.
The lira has fallen by 30% against the dollar since the beginning of the year, and has lost 78% of its value against the dollar in the past five years.
In June, Turkey raised its key interest rate for the first time in more than two years, after Turkish President Recep Tayyip Erdogan appointed policymakers who pledged to implement economic doctrine to change the inflation picture.
Traditional economic orthodoxy holds that interest rates must be raised to calm inflation, but Erdogan – a self-proclaimed “enemy” of interest rates and calling the instrument the “mother of all evil” – has openly embraced a strategy of lowering interest rates instead.
Turkey steadily lowered its interest rate from 19% in late 2021 to 8.5% last March, as inflation ballooned, exceeding 80% in late 2022 and then falling to just under 40% in June.
After setting out on a hiking trail, the central bank in July announced its target of lowering inflation to 5% over the medium term – an ambitious forecast, as annual inflation in Turkey jumped to nearly 59% in August. . Ankara now expects annual inflation to reach 65% by the end of 2023, up from a forecast of 24.9% a year ago.
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