Turkey: Central Bank Raises Interest Rates to 40%

Facts

• In order to combat the nation's skyrocketing double-digit inflation, Turkey's central bank has increased its benchmark interest rate by 500 basis points to 40%.¹
• Following Thursday's move — which comes as inflation reached 61% in October — the Turkish lira traded at 28.766 to the US dollar.²
• Previously, the central bank governor, Hafize Gaye Erkan, had forecast inflation to reach 65% by the end of 2023 and drop to 36% by the end of 2024 before peaking between 70% and 75% next May.³
• Turkish Pres. Recep Tayyip Erdoğan's unconventional economic policies, including lowering borrowing costs, are frequently cited as the causes of Turkey's economic suffering.⁴
• However, despite the staggering inflation and a spike in the cost of living, Erka predicts 'the current level of monetary tightness' will soon 'establish the disinflation course' and stabilize the economy.⁵

Sources: ¹BBC News, ²CNBC, ³Gulf Business, ⁴Associated Press and ⁵Euronews.

Narratives

• Narrative A, as provided by Reuters. The Turkish economy has been plagued by skyrocketing inflation and a perpetual crisis for years, which has left Turks struggling to afford essential commodities or pay utility bills. Erdoğan's unconventional policy of lowering interest rates to combat inflation has been reversed since his re-election in May. The new strategy signals that Turkey is taking the required steps to rein in out-of-control inflation and will ensure sustained price stability in a short period.
• Narrative B, as provided by Nikkei Asia. A years-long dearth of a stable fiscal policy is exactly what has led to Turkey's economic crisis, and Erdoğan's sudden return to traditional policies — which has caused the Turkish lira to tumble to record lows against the dollar — will only exacerbate the issue. There's no relief in sight for Turkey, which is weathering an unprecedented financial crisis thanks to Erdogan's careless steps.

Predictions