On Thursday, August 24th, the Central Bank of Turkey executed a substantial increase in its key interest rate, elevating it from 17.5% to 25%. This bold move is aimed at curbing the rampant inflation that has been eroding the purchasing power of Turkish citizens for nearly two years, an inflationary challenge primarily attributed to the monetary policies of Recep Tayyip Erdogan. With this latest hike, the Central Bank solidifies the strategic shift initiated following President Erdogan’s re-election at the end of May.
Remarkably, this marks the third instance since June in which the Turkish Central Bank has raised its primary interest rate, with this third increase being the most substantial. Consequently, any lingering skepticism about the matter has been dispelled: Recep Tayyip Erdogan’s monetary policy, which previously asserted that there would be no further interest rate hikes as long as he remained in power, has executed an abrupt 180-degree turn.
Erdogan had contended that raising interest rates would trigger inflation. However, it is precisely in the name of combating the alarming 48% year-on-year inflation that the Turkish government justifies this latest interest rate surge. “Our determination remains unwavering. Price stability stands as our foremost priority”, affirmed Mehmet Simsek, the Minister of Finance who took office at the beginning of June.
The decisive action by the Central Bank underscores Recep Tayyip Erdogan’s willingness to grant considerable leeway to the new team tasked with steering the Turkish economy in anticipation of the municipal elections slated for March 2024.