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Turkey’s landmark rate hike augurs economic contraction

Ankara’s departure from a much-criticized policy to keep interest rates low offers hope for a currency recovery but threatens economic recession and fresh livelihood grievances for the populace.
ISTANBUL, TURKEY - NOVEMBER 09: A man exchanges money at a currency exchange shop on November 09, 2020 in Istanbul, Turkey. Finance Minister Berat Albayrak, the son-in-law of President Erdogan who has been in the role for five years, resigned Sunday citing health reasons. The country's currency has plunged 30 percent this year. After the resignation of Berat Albayrak, Turkish lira gained 3% against $ following the resignation. (Photo by Burak Kara/Getty Images)
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Turkey’s Central Bank announced the biggest hike in interest rates in more than two years Thursday. President Recep Tayyip Erdogan, who has bitterly opposed raising rates, is scrambling to restore foreign investor confidence and contain the country’s deepening economic woes.

The rate hike offers hope that the sharp depreciation of the Turkish lira and the dollarization trend in Turkey could abate but also threatens economic contraction and fresh livelihood grievances for the populace, similar to the downturn in 2018, for which Erdogan’s Justice and Development Party (AKP) paid dearly in local elections in spring 2019.

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