Turkish Interest Rate Lifted to 25%

August 24, 2023

The Central Bank of Turkey’s key interest rate was raised to 25.0% from 17.5%. This biggest move so far followed increases of 250 basis points in July and 650 bps in June and catapults the rate well beyond the prior peak of 19.0% for five months from March 2021 to August 2021. The size of today’s move surpassed market expectations and lifted the Turkish lira by more than 5.5% against the dollar. A sharp previous slump in the lira has been impeding official efforts to return inflation to its 5% target. Consumer price inflation in Turkey accelerated in July to 47.8% from 38.2% in June as prices posted a whopping 9.5% month-on-month. According to a statement from the central bank,

Recent indicators point to a continued increase in the underlying trend of inflation. The strong course of domestic demand, cost pressures stemming from wages and exchange rates, stickiness of services inflation and tax regulations have been the main drivers. In addition to these factors, also driven by the rise in oil prices, higher-than-anticipated deterioration in inflation expectations and in pricing behavior implies a year-end inflation close to the upper bound of the forecast range.

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