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Turkey’s Central Bank Introduces Major Rate Hike

2023.11.24

 

Key Takeaways

  • Turkey’s Central Bank unexpectedly raises interest rate to 40%.
  • The decision aims to combat 61% inflation and strengthen the lira.

Aggressive Monetary Policy Shift

Turkey’s central bank, in a surprising move, increased its benchmark one-week repo rate by a substantial 500 basis points, taking it to an elevated level of 40%. This decision surpassed economists’ predictions of a 250-basis-point hike, reflecting a more aggressive stance against the country’s economic challenges.

 

This bold rate hike is part of the Central Bank of the Republic of Turkey’s ongoing efforts to curb the country’s soaring inflation, which hit 61% in October. The bank’s assertive approach underlines its commitment to stabilizing the economy and controlling price increases.

Impact on the Turkish Lira

Following the announcement, the Turkish lira showed a marginal strengthening against the dollar, trading at 28.766 to the greenback. This response indicates a cautious market optimism about the potential effectiveness of the central bank’s strategy in restoring currency stability.

Market Analysts’ Reaction

Timothy Ash, a strategist at BlueBay Asset Management, commended the central bank’s decision. He noted the move as a significant demonstration of the bank’s commitment to orthodox monetary policy and its serious intention to combat inflation.

Economic Challenges and Policy Response

Turkey has faced persistent economic turmoil characterized by rampant inflation and a weakening lira, largely attributed to previous lenient monetary policies. The central bank’s recent rate hikes are a response to these ongoing challenges, aiming to reverse the trend of a deteriorating currency that has lost considerable value against the dollar over the past five years.

 

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