ANKARA (AFP) – Turkey’s central bank yesterday hiked its main interest rate by two percentage points to 17 per cent and promised further monetary tightening to help tamp down soaring inflation.
The decision means that Turkey’s main rate has soared by 6.75 percentage points in just a month after two years in which it was held steady due to President Recep Tayyip Erdogan’s belief that higher rates cause inflation.
That policy saw the Turkish lira lose roughly a third of its value against the dollar as the central bank burned through its reserves in an effort to prop up the currency.
The accompanying rise in the annual inflation rate to above 10 per cent forced Erdogan to reshuffle his economic team and appoint market-friendly former finance minister Naci Agbal as central bank chief last month.
The lira managed to claw back about 10 per cent against the dollar after the change on market expectations that monetary orthodoxy was retuning to Turkey’s management of the economy.
The statement issued after Agbal’s second monthly central bank policy meeting yesterday focussed heavily on fighting inflation.
The bank “has decided to implement a strong monetary tightening, in order to eliminate risks to the inflation outlook, contain inflation expectations and restore the disinflation process as soon as possible”, it said in a statement.
“In the forthcoming period, tightness of the monetary policy stance will be decisively sustained until strong indicators point to a permanent fall in inflation in line with the targets and to price stability,” it added.
The lira gained more than half a per cent in value and was trading at around 7.59 against the dollar minutes after the rate decision.