Skip to content Skip to Search
Skip navigation

Turkey hikes interest rates in attempt to curb inflation 

Monetary and fiscal tightening will help support disinflation, said Turkish finance minister Mehmet Şimşek Reuters
Monetary and fiscal tightening will help support disinflation, said Turkish finance minister Mehmet Şimşek
  • Interest rates rise to 15% from 8.5%
  • First increase since March 2021
  • Analysts expected a larger hike

Turkey raised its benchmark interest rate by 6.5 percentage points on Thursday in the first hike since March 2021 as the central bank sought to soothe markets by bringing official borrowing costs closer to inflation.

Following its inaugural meeting under the helm of fledgling central bank governor Hafize Gaye Erkan the monetary policy committee announced it would increase the one-week repo rate to 15 percent from 8.5 percent

Erkan was one of several appointments that Recep Tayyip Erdoğan made following his surprise re-election as president last month.

Erkan, like new finance and treasury minister Mehmet Şimşek, is a market-friendly former bank industry executive and their hiring was seen as an attempt to quell fears over Erdoğan’s unconventional economic policies.

The nominally independent central bank has essentially become part of Erdoğan’s government, analysts say, slashing interest rates in response to soaring inflation. This strategy contradicts mainstream thinking that interest rates should rise to combat increasing prices.

Annual inflation was 39.6 percent in May. The central bank had slashed interest rates to 8.5 percent from 19 percent in 2021 in cuts that sent the lira tumbling to record lows versus the dollar.

Turkey’s currency has lost more than 90 percent of its value over the past decade.

In announcing Thursday’s rate hike, the central bank said it did so to curb inflation and that “monetary tightening will be further strengthened as much as needed in a timely and gradual manner”, implying additional increases were likely.

Erkan had been widely expected to raise Turkish interest rates after Erdoğan indicated he was willing to change strategy to some extent.

Liam Peach, a senior economist at Capital Economics in London, described the rate increase as “a bit underwhelming as expectations had built up for a larger hike and a faster (move) towards more orthodox policies”.

“The lira is likely to continue depreciating in the coming months even if the central bank raises interest rates further as policymakers are likely to gradually phase out foreign exchange restrictions and regulations that have been used to manage the lira in recent months,” Peach said.

He added he was confident the central bank could yet raise rates to 25-30 percent this year, citing the central bank’s hawkish comments in announcing Thursday’s increase.

Latest articles

Lesha Bank's total assets under management increased to QAR6.4 billion, an 11 percent increase year on year

Qatari Islamic bank buys Kazakhstan’s Bereke Bank

Lesha Bank, a sharia-compliant bank in Qatar, has acquired Bereke Bank from Kazakhstan government-backed Baiterek Holding for QAR532 million ($146 million). The Qatar Stock Exchange-listed company said in a statement that the transaction is, however, subject to regulatory approvals. Last month the bank reported an all-time high quarterly net profit of QAR28.8 million in the first quarter of […]

Abu Dhabi crown prince Sheikh Khaled bin Mohamed bin Zayed Al Nahyan at the signing ceremony for the joint venture between Edge and Fincantieri

UAE-Italian venture wins $434m deal for naval vessels

A joint venture between UAE’s state-owned defence company Edge Group and Italy’s Fincantieri will build a shipbuilding facility for advanced naval vessels in Abu Dhabi. The new venture, Maestral, has secured a large order from the UAE Coast Guard Forces for 10 advanced 51-metre offshore patrol vessels (OPVs) worth €400 million ($434 million). Edge owns 51 […]

Dubai's total passenger traffic for Q1 2024 reached 23,052,060, an annual rise of 8.4 percent

Passenger traffic at UAE airports increases 15%

Passenger traffic at UAE airports rose 15 percent year on year to 36.5 million in the first three months of 2024, according to data released by the General Civil Aviation Authority (GCAA)  Arrivals reached 10.7 million, while departures stood at 10.9 million. The number of transit passengers was 14.9 million, the state-run Wam news agency […]

UAE President Sheikh Mohamed bin Zayed Al Nahyan and Jordan's King Abdullah II talk during a meeting in Abu Dhabi in March

UAE’s ADQ to invest $5bn in Jordan’s economy

Abu Dhabi sovereign wealth fund ADQ has completed plans to invest $5 billion in infrastructure and other projects in Jordan. ADQ has completed the formalities to set up the infrastructure investment fund company, Jordan’s ministry of investment said in a statement. This initiative is part of the agreement signed with the UAE during last year’s visit to […]