Skip to content Skip to Search
Skip navigation

Turkey raises credit card interest to tame inflation

Loans for the earthquake zone will be exempted from the Turkish central bank's credit restrictions Reuters/Thaier Al-Sudani
Loans for the earthquake zone will be exempted from the Turkish central bank's credit restrictions

The Turkish central bank on Tuesday detailed moves it was taking to support monetary tightening, including raising the monthly maximum interest rate on credit card cash usage and overdraft accounts to 2.89 percent.

It said the increase in the rate, from a previous 1.91 percent, was designed to control inflation and balance domestic demand.

The move came after the bank last week hiked its policy rate by 250 basis points to 17.5 percent, continuing to reverse President Tayyip Erdoğan’s low-rates policy and promising more tightening.

It was the second meeting under new Governor Hafize Gaye Erkan, who is leading a change of course after the one-week repo rate was cut to 8.5 percent from 19 percent since 2021 despite soaring inflation.

The less-than-expected hike came amid economist expectations that inflation, which fell to 38.21 percent in June, will surge to 60 percent by year-end due to the lira’s decline and various tax hikes.

After its July 20 meeting, the bank said simplification of policy would continue gradually and selective credit and quantitative tightening decisions were being taken to support the monetary tightening process.

On Tuesday, the bank said it set the monthly growth limit for lira commercial loans at 2.5 percent, down from a previous three percent, excluding export, investment and agriculture loans, to complement steps taken in a policy simplification process.

“The central bank reveals that the tightening will not only proceed with the increase in interest rates, but also with the selective measures, the domestic demand will be narrowed,” said Enver Erkan, chief economist at Dinamik Yatirim.

The lira was little changed at 26.95 against the dollar on Tuesday, near a record low of 27.05, having weakened 30 percent so far this year.

Among other steps, a reserve requirement ratio of 15 percent on FX-protected accounts was announced on July 21.

The bank said on Tuesday it had also decided to set the growth limit for vehicle loans at two percent, down from three percent, and to keep the three percent limit for general purpose loans unchanged.

Export and investment loans as well as loans for the earthquake zone will be exempted from the bank’s credit restricting measures.

Steps have also been taken to support exporters’ access to financing, with the daily limit for rediscount credits raised to 1.5 billion lira.