Turkey’s central bank resumed its program of raising interest rates to battle skyrocketing inflation, which is severely hurting people’s finances. The increase was 5 percentage points.
In an unexpected move, the central bank announced that it was increasing the benchmark one-week repo rate to 50%. In light of the upcoming mayoral elections on March 31, it was widely anticipated that the bank would hold the benchmark rate constant for an additional month.
Raising the benchmark rate was the bank’s stated decision “in response to the deterioration in the inflation outlook.”
The bank stated, “Tight monetary policy will be maintained until a notable and sustained decline in the monthly inflation trend is observed.”
In February, annual consumer price inflation exceeded forecasts, reaching 67%. Many families are finding it difficult to pay for electricity, rent, and food due to rising costs.
Cutting interest rates to control inflation is an unconventional economic strategy that President Recep Tayyip Erdogan has long supported.
Laptops 1000This idea defies accepted economic wisdom. After Erdogan changed his strategy after winning reelection in May by appointing a new economic team, a succession of rate cuts by the central bank caused double-digit inflation and a currency crisis.
The central bank stopped raising rates last month after raising the benchmark interest rate from 8.5% in June to 45% in January under the new leadership.
In an email statement, Bartosz Sawicki, a market analyst at Conotoxia, stated, “Even though the end of the tightening cycle was declared in January, the Turkish central bank was forced to lift the one-week repo rate from 45% to 50% despite local elections looming.”
“We did not quickly fix imbalances cultivated by years of irresponsible, unorthodox policies,” according to Sawicki, the rate has increased since the May 2023 presidential elections
Following Thursday’s ruling, the Turkish lira, which has lost around 40% of its value to the US dollar in the last year, began to gain some ground.
