Türkiye’s central bank hiked its key interest rate to 40% on Thursday in an effort to tackle soaring inflation.
The rise by another 500 basis points from the previous 35% is double the increase that economists expected. The projection was for an increase of 250 basis points.
The move was seen by the market as a continuation of the central bank’s attempts to tame surging inflation and prop up a falling Turkish lira. Inflation in the country came in at a massive 61% in October.
“Really impressive move by the CBRT (Central Bank of the Republic of Türkiye) – probing their orthodoxy and getting well ahead of expectations,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management.
“These guys and girls are serious about fighting inflation,” he added. “We need to give them credit for that.”
The central bank, under its new chief Hafize Gaye Erkan, a former Wall Street banker, has been ratcheting up interest rates in a series of increases from 8.5% to the current 40% in a bid to lift the cost of borrowing and slow down price rises.
“The pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time,” the regulator said, adding that interest rates would stay at a high level for “as long as needed to ensure sustained price stability.”
The decision, which has been painful for Turks, comes as the country seeks to turn around several years of skyrocketing inflation and a dramatically weakened currency, largely resulting from the government’s stubbornly loose monetary policy.
The lira has lost more than 80% of its value against the US dollar over the last five years.
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