Turkey's Central Bank raises interest rates for first time in 27 months

The decision to raise interest rates surprised some analysts who had predicted the 625 basis points increase, while others expected a more significant increase of up to 40%. However, most predictions from foreign institutions were in the range of 20-25%.

The Central Bank's move to increase interest rates follows a series of unorthodox measures taken by the government in an attempt to boost the economy. The Turkish government implemented policies such as reducing interest rates and pumping liquidity into the market, which contributed to the devaluation of the lira, a surge in inflation rates, and a decrease in the country's foreign exchange reserves.

The new governor Erkan, who took office in April 2023, had promised to restore confidence in the Central Bank's policymaking and implement rational policies to combat inflation. The rate hike is seen as a step in this direction and a reflection of the governor's commitment to ensuring the stability of the Turkish economy.

With the first interest rate hike in over two years, Turkey's Central Bank is taking a crucial step towards stabilizing the country's economy and restoring the confidence of foreign investors. However, it remains to be seen whether this will be enough to restore the lira's value and bring down the inflation rate, which have both been major challenges for the Turkish economy in recent years.