ANKARA — Turkey’s Central Bank, in a unexpected move, hiked interest rates Thursday by another 500 basis points, from 45% to 50%.
The monetary policy committee cited a “higher than expected” surge in the country’s year-on-year inflation last month, which hit almost 70%. The embattled Turkish lira strengthened immediately after the surprise announcement, trading more than 1% up on the day at 14:30 p.m. local time.
“Recent indicators imply that domestic demand remains resilient,” the bank said in a statement.
A Reuters poll released earlier this week predicted that the bank would hold rates at 45% after it announced in January that it was pausing a dramatic rate-hike run for eight successive months, from June to January.
The bank’s management had said it was ready to resume monetary tightening if the inflation outlook deteriorated.
“In response to the deterioration in the inflation outlook, the committee decided to raise the policy rate,” the bank said on Thursday. “Tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed.”
The move comes ahead of nationwide local elections to be held March 31. Turkish President Recep Tayyip Erdogan and his ruling Justice and Development Party is seeking to recapture large cities from the main opposition.
Timothy Ash, senior emerging market strategist at BlueBay Asset Management, described the hike as a hugely positive move.
“The central bank of Turkey sent two strong signals: a) we are independent; b) we are determined to fight inflation,” he posted on the social media platform X.
Erdogan has been a staunch opponent of high interest rates.
Ahead of the May general elections, the bank, under his influence, had kept interest rates as low as 8.5%. As part of the Turkish leader’s U-turn toward economic orthodoxy, the central bank, under new management appointed after the election, pledged to return to the traditional economic policy of raising interest rates to tame high inflation.
This is a breaking story and has been updated.
