President Erdogan’s Policy U-turn Signals Determined Effort to Stabilize Economy and Tackle Soaring Inflation Head-On.
In a significant policy shift, Turkey’s central bank has announced a substantial increase in its main interest rate to 40%, aiming to curb inflation, which reached 61.36% in October and is projected to peak between 70% to 75% by May 2024.
President Recep Tayyip Erdogan, known for his previous aversion to higher interest rates, has embraced a decisive change in economic strategy following his re-election in May. Acknowledging the pressing need to address the country’s economic challenges, President Erdogan enlisted the expertise of Hafize Gaye Erkan, a former Wall Street banker, to guide the nation through this economic pivot.
The unexpected increase from the previous rate of 35% underscores Turkey’s commitment to stabilizing its economy and preventing inflation from spiraling further out of control. The central bank, under Erkan’s leadership, emphasized that these measures are vital to slow down rising prices and create a foundation for sustained economic stability.
Turkey's central bank hikes interest rate by 500 basis points to 40%, well above expectations https://t.co/5RbPXBy7xa
— CNBC (@CNBC) November 23, 2023
“The pace of monetary tightening will slow down, and the tightening cycle will be completed in a short period of time,” stated the central bank. It further affirmed that interest rates would remain at elevated levels for “as long as needed to ensure sustained price stability.”
Turkey, once celebrated for its rapid economic growth, has faced challenges in recent years. The central bank’s previous policy of reducing interest rates amid high inflation led to a currency crisis in 2021. In response, the government implemented measures to safeguard lira deposits from currency depreciation.
The current move to raise interest rates is a proactive step to rectify past economic imbalances and ensure a more resilient and stable financial future for Turkey. The government and the central bank expressed confidence in these measures, emphasizing their commitment to steering the nation toward sustained economic recovery.