Turkish central bank raises key policy rate to 25% from 17.5%

The decision, which comes as inflation reached 47.83 per cent in July, is a deviation from a rate-cutting course set by the government amid a cost-of-living crisis.

Inflation peaked at more than 85 per cent in October last year.

To combat the spike in prices, the bank said it “decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior,” global newswires reported.

CBRT governor Hafize Gaye Erkan estimates inflation will reach 58 per cent at the end of the year—up from the 22.3 per cent her predecessor had predicted.

Contrary to traditional economic thinking, President Recep Tayyip Erdogan has long argued that lowering interest rates helps fight inflation.

When central banks around the world were hiking rates to fight inflation after the COVID-19 pandemic and Russia’s war in Ukraine, CBRT started cutting rates in late 2021.

The situation changed after Erdogan, after winning again in May election, appointed a new economic team.

Following Erkan’s appointment as central bank governor, CBRT raised the key policy rate by 6.5 percentage points to 15 per cent in June, and then by 2.5 percentage points, to 17.5 per cent in July.

The key interest rate had been reduced from around 19 per cent in 2021 to 8.5 per cent earlier this year.

Fibre2Fashion News Desk (DS)