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Turkiye’s central bank hikes interest rates again as it tries to tame eye-watering inflation

ANKARA (AP) – Turkiye’s central bank delivered another huge interest rate hike on Thursday as it tries to curb double-digit inflation that has left households struggling to afford food and other basic goods.

The bank pushed its policy rate up by five percentage points, to 40 per cent, marking its sixth big interest rate hike in a row focused on beating down inflation that hit an eye-watering 61.36 per cent last month.

President Recep Tayyip Erdogan has long been a proponent of an unorthodox policy of cutting interest rates to fight inflation and had fired central bank governors who resisted his rate-slashing policies.

That runs counter to traditional economic thinking, and many blamed Erdogan’s unusual methods for economic turmoil that has included a currency crisis and an increasingly high cost of living.

Other central banks around the world have raised interest rates rapidly to target spikes in consumer prices tied to the rebound from the COVID-19 pandemic and then the war in Ukraine.

Following Erdogan’s re-election in May, he appointed a new economic team, which has quickly moved toward reversing his previous policy of keeping interest rates low.

The team includes former Merrill Lynch banker Mehmet Simsek, who returned as finance minister, a post he held until 2018, and Hafize Gaye Erkan, a former United States (US)-based bank executive, who took over as central bank governor in June.

Under Erkan’s tenure, the central bank has hiked its main interest rate from 8.5 per cent to 40 per cent.

A seller talks to a customer in a street market in Istanbul, Turkey. PHOTO: AP