Turkey raises interest rates to 24% in startling bid to curb inflation

The president will oversee financing for large state development projects

His remarks followed an announcement by Turkey's central bank on Thursday that it had lifted its benchmark rate by 6.25 percentage points.

The Turkish central bank on Thursday hiked the one week repo auction rate 625 basis points from 17.75 per cent to 24 per cent, significantly higher than the Bloomberg consensus of 21 per cent.

Inflation also soared this month to a 15-year high of nearly 18%.

"It was a big surprise to us, but probably to every Turkey-watcher", said Nora Neuteboom, an economist at ABN Amro, saying the move was a "positive signal" with the bank wanting to show its independence and commitment to fight inflation.

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it added, explaining the hike.

It said the policy would be "maintained decisively until inflation outlook displays a significant improvement".

The central bank and government have taken a series of measures to support the ailing currency, with Erdogan ruling early on Thursday that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currency.

TRT World's Turkey analyst Yusuf Erim has more.


The Turkish lira began to recover shortly after the rate hike, strengthening by 3% to 6.16 against the dollar.

But Neuteboom of ABN Amro said much more was needed for Turkey to turn around "the negative spiral" the economy is in. Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth.

Despite the comments, Erdogan added: "There has been no change in my sensitivities on the issue of interest rates".

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation. "If you say ´inflation is the cause, the rate is the result´, you do not know this business, friend", he added. They increased the cost of cash to commercial lenders by around 150 basis points last month by forcing them to use a borrowing tool costlier than the one-week repo rate.

The lira has plunged in recent weeks on concerns over domestic policymaking and a crisis in relations with the United States.

The lira hit new lows in late July after the Turkish central bank left interest rates unchanged as inflation continued to rise.

Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the U.S. as well as sanctions over the detention of an American evangelical pastor.

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