The decision has surprised analysts, who had expected a more moderate rise or even a pause in the upward cycle

Turkey's Central Bank tightens monetary policy and raises interest rates to 17.5%

PHOTO/REUTERS - Sede del Banco Central de Turquía se ve en Ankara, Turquía — PHOTO/REUTERS - Turkish Central Bank headquarters is seen in Ankara, Turkey

21/07/23

Turkey's Central Bank decided on Thursday to raise interest rates from 15 to 17.5%, with the aim of containing the country's high inflation and supporting the depreciating Turkish lira.

This is the second consecutive interest rate hike in Turkey, after the Central Bank decided last June to increase the price of the Turkish currency by 900 basis points, from 10.25% to 15%.

The Turkish Central Bank has explained in a statement that the rise in interest rates responds to the need to "maintain a high degree of monetary tightening" in the face of "inflationary pressures" arising from weak domestic demand, rising commodity prices and exchange rate depreciation.

REUTERS/MURAD SEZER - Lira turca — **REUTERS/MURAD SEZER -** Turkish Lira

According to media reports, the new governor of the Turkish central bank also warns that "monetary tightening will be further strengthened as much as necessary in a timely and gradual manner until a significant improvement in the inflation outlook is achieved".

The central bank has assured that it will continue to use "all available instruments" to achieve price stability and that it will maintain a "determined and transparent" monetary policy until a significant improvement in inflation expectations and projections is observed.

PHOTO/REUTERS - El presidente turco, Recep Tayyip Erdogan, durante una conferencia de prensa en Estambul, Turquía, el 3 de febrero de 2020 — **PHOTO/REUTERS -** Turkish President Recep Tayyip Erdogan during a news conference in Istanbul, Turkey February 3, 2020

This year, the value of the currency against the dollar has declined by 30 per cent. Market concerns that the next rate hike would be less than expected caused the lira to fall to a new record low of 26.9% against the dollar earlier this week. With this rate hike, the new governor is trying to control inflation, which is rising according to recent indicators.

The Central Bank has indicated that it will continue to closely monitor macroeconomic and financial indicators and will take the necessary measures to support financial stability and sustainable growth.

With this decision, the Central Bank has defied the stance of Turkish President Recep Tayyip Erdoğan, who has exerted strong pressure on the monetary institution to keep interest rates low, ignoring the uncontrolled growth of inflation affecting the country's economy.

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Economy Turkey