Why the Central Bank of Turkey raised the rate for the third time in a row – now to 25%

The Central Bank of Turkey at a meeting on Thursday announced an increase in the key rate immediately by 750 basis points – up to 25%. The regulator’s decision exceeded the forecasts of experts who were waiting for a more moderate increase – up to 20%, according to the consensus forecast of analysts polled by Bloomberg. This is the third consecutive rate increase in the country. In June, the Turkish Central Bank decided to increase it – for the first time since March 2021 – from 8.5 to 15%, in July – to 17.5%. The change of course in monetary policy (MP) in Turkey occurred after the appointment of Hafize Gaye Erkan to the post of chairman of the Central Bank.

The Turkish lira reacted positively to the decision, showing an increase of 5%. Following the national currency, the Istanbul Stock Exchange grew by 6%. Nevertheless, inflation still exceeds both the interest rate and the 5% target approved by the Central Bank. In July, it amounted to 47.83% in annual terms after 38.21% in June. This is how inflation reacted to the increase in the key rate and tough signals from the Central Bank.