Turkish Central Bank Interest Rate Policy

Turkish bank raises interest rates again, but promises to stop doing so soon

The Turkish central bank is going one step further in raising interest rates. The interest rate will increase this month from 40 percent to 42.5 percent. According to the bank, its own “aggressive” policy will end as soon as possible.

Continued Rate Increases

In the past three months, the bank increased interest rates by 5 percentage points. That pace is now slowing, with an increase of 2.5 percentage points.

Plans to Phase Out Interest Rate Hikes

The bank also announced a month earlier that it wanted to phase out interest rate increases. High interest rates make it more difficult for people and companies to borrow money. At the same time, the bank says that the policy is necessary to stabilize prices, and that this is almost happening.

Inflation and Economic Outlook

Last month, Turkish inflation was almost 62 percent. The Turkish bank predicts a further increase in inflation to more than 70 percent in May next year. Only by the end of 2024 will inflation have fallen to around 36 percent.

Government Policy and Economic Impact

Turkish President Recep Tayyip Erdogan tried to control price increases for a long time by cutting interest rates. This goes against the prevailing economic theory that you need to increase interest rates to get inflation under control. The policy did not solve the problems.