Turkey’s central bank sharply raised its key interest rate by 7.5 percentage points to 25 percent on the 24th to fight inflation.
The rate hike is seen as a new sign that the Turkey is returning to normal the abnormal economic policies of President Recep Tayyip Erdogan, who has continued to cut interest rates in reverse, away from the usual economic policy of raising interest rates to curb inflation.
Unlike central banks around the world scrambling to raise interest rates amid the global COVID-19 pandemic and soaring prices following Russia’s war in Ukraine, Erdogan has continued to insist on a rate cut, saying that raising interest rates would rather raise prices further. The Turkey’s interest rate, which was around 19% in 2021, fell to 8.5% earlier this year.
But Turkey’s new central bank, newly appointed after Erdogan won re-election in May, continues to retreat from its previous rate-cutting policy and returns to its normal economic policy. Mehmet Simsek and central bank president Hafeez Gaje Erkan, who were selected as new finance ministers, sharply raised interest rates by 6.5 percentage points to 15 percent in June, and nearly tripled them three times in two months, following another 2.5 percentage point increase to 17.5 percent in July.
As prices skyrocket, many families in Turkiye are suffering from difficulties in preparing rent and basic necessities.
Turkey’s inflation rate, which peaked at more than 85 percent in October last year, fell to 47.83 percent in July. Independent economists, however, believe the actual inflation rate is much higher, reaching 123 percent.
Meanwhile, the value of the Turkish lira against the U.S. dollar has fallen more than 30% this year. Experts point out that the Turkey’s foreign exchange reserves have been depleted as the central bank has started to boost the lira ahead of the May election.
