Türkiye announces massive interest rate hike

The Turkish central bank raised its benchmark interest rate by 7.5 percentage points on Thursday to 25%, in a bid to curb spiraling inflation.     

The hike was significantly higher than the increase to 20% that many economists had expected.     

The regulator opted for a major increase in a sign of a turn to more “rational” economic policies after years of rate-cutting, which has been blamed for fueling inflation and the cost-of-living crisis in Türkiye.     

Thursday’s hike is further evidence that policymakers in Ankara are following through on their pledge to return to a more conventional approach to monetary policy. The lira rallied strongly in the wake of the move.   

The governor of the Turkish central bank, Hafize Gaye Erkan, who was appointed in June, has nearly tripled benchmark interest rates from 8.5% since being appointed.    

The regulator does not rule out further tightening in the coming months until the inflation situation in Türkiye improves. Price growth jumped from 38% in June to almost 48% in July.     

The surging inflation has driven the central bank to sharply revise upwards its year-end inflation forecast from 22.3% to 58%.

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