Türkiye’s central bank raised its key interest rate by 350 basis points to 46 percent on Thursday in an unexpected move that reversed the easing cycle and supported the lira following recent market volatility.
Despite market forecasts predicting that the rate would be left unchanged, Türkiye’s central bank raised the benchmark one-week repo rate from 42.5 percent to 46 percent. The central bank also raised its overnight lending rate again, to 49 percent from 46 percent, after raising it last month in an unscheduled decision. In addition, the overnight borrowing rate was increased to 44.5 percent from 41 percent.
Türkiye to monitor impact of trade tensions on disinflation
Türkiye’s central bank said it is closely monitoring the potential effects of rising protectionism in global trade on the disinflation process through global economic activity, commodity prices, and capital flows.
“Monthly core goods inflation is expected to rise slightly in April due to recent developments in financial markets,” the central bank’s policy committee said in its decision.
“Inflation expectations and pricing behavior continue to pose risks to the disinflation process,” the bank said, adding it would tighten further “in case a significant and persistent deterioration in inflation is foreseen.”
Türkiye’s annual inflation rate in March eased for the 10th consecutive month to 38.1 percent, its lowest reading since December 2021. From May 2023 until last March, the bank raised the rate from 8.5 to 50 percent and then kept it steady until its meeting last December, when it lowered the rate 250 basis points to 47.5 percent.
The bank cut the benchmark rate at its last three meetings from 47.5 percent to 42.5 percent.
Read: European Central Bank cuts interest rates to 2.25 percent amid global tariff turmoil
Turkish lira strengthens
The lira strengthened slightly after the decision, trading at 38.10 to the U.S. dollar. Last month, the currency briefly hit a record low of 42 and stocks and bonds plunged, pushing authorities to take several measures to ease the market fallout.
Earlier this month, Mehmet Simsek, Türkiye’s minister of finance, said: “We expect the impact of the recent volatility in the markets on inflation to be limited by tightening financial conditions. We will continue to use all our policy tools with strong coordination in line with our price stability target.”
The European Bank for Reconstruction and Development (EBRD) expected in its February report that Türkiye’s economy would grow by 3 percent this year. The bank also expects Türkiye’s gross domestic product (GDP) to hit 3.5 percent next year.
However, EBRD warned that geopolitical uncertainties and sticky inflation still continue to present downside risks to the Turkish economy.
