From Yahoo Finance: 2025-04-17 07:50:00

Turkey’s central bank raised interest rates by 350 basis points to 46%, reversing a recent easing cycle, to stabilize the lira and combat rising inflation. Last month, the lira hit a record low of 42 to the U.S. dollar after Istanbul’s mayor was detained. Further tightening may be necessary if inflation worsens.

Despite expectations for a smaller rate hike, the central bank surprised with the 350 basis point increase, with most analysts predicting a pause. The move aims to counter inflationary pressures and market turmoil following the mayor’s arrest. The bank also increased the overnight lending rate to 49%.

The decision to raise interest rates was influenced by concerns over inflation, pricing behavior, and domestic demand exceeding projections. The central bank aims to control inflation expectations and prevent further disinflation. The recent policy pivot comes after months of easing monetary policy since December.

Following the rate hike, the lira strengthened slightly against the dollar. Political tensions and global trade wars have contributed to market volatility. Economists anticipate increased inflation readings due to recent events, with annual inflation projected to hit 24% by year-end.

The arrest of Istanbul’s mayor, a political rival to President Erdogan, led to protests and criticism of a politicized judiciary. Market skepticism remains amidst the crackdown on political opposition. The central bank sold reserves and bought bonds to stabilize the lira, with cuts expected to resume in June.

Before the recent tightening, the central bank paused funding through repo auctions, effectively tightening funding conditions. The bank will resume one-week repo auctions and closely monitor liquidity. Despite ongoing challenges, Turkish assets have shown some recovery following recent market turmoil.

Read more: Turkish central bank surprises with rate hike to 46% after market turmoil