Turkey’s central bank on Thursday delivered what it said was the final interest rate hike of a historic tightening cycle that more than quintupled borrowing costs to fight record inflation, Agence France-Presse reported.
The bank lifted its policy rate to 45 percent from 42.5 percent and said the level was sufficient to start fighting Turkey’s dire cost of living crisis.
“The monetary tightness required to establish the disinflation course is achieved and this level will be maintained as long as needed,” the bank said in statement.
The central bank has now lifted borrowing costs from 8.5 percent in June to the highest level of President Recep Tayyip Erdoğan’s 21-year rule in a bid to cure Turkey’s worst bout of inflation since the 1990s.
Turkey’s final rate hike follows a turbulent week for central bank governor Hafize Gaye Erkan — a former Wall Street executive and Turkey’s most senior female official.
The 44-year-old came under withering attack on social media and in some opposition publications for allegedly allowing her father to make unauthorized personnel decisions at the bank.
Erkan has reportedly also angered Erdoğan by telling one major newspaper last month that she had to move in with her parents because inflation had made renting in İstanbul unaffordable.
The attacks on Turkey’s first female central bank governor alarmed investors and created uncertainty about Erdoğan’s long-term commitment to his team.
‘Merchants of mischief’
The Turkish leader has been a lifelong opponent of high interest rates — famously branding them the “mother and father of all evil” — and a proponent of unorthodox economics.
Analysts blame Turkey’s year-long economic meltdown on his decision to push the central bank to slash interest rates in the face of rising consumer prices.
The annual inflation rate touched a two-decade high of 85 percent in 2022 and climbed back up to 65 percent last month.
The crisis forced Erdoğan to perform a major policy reversal after being pushed into a presidential election runoff last year against a candidate who focused on Turkey’s economic ills.
Erkan and Finance Minister Mehmet Şimşek– both highly respected by Western investors — have been credited with steering Turkey from the brink of disaster since joining Erdoğan’s team once he won last May’s second round vote.
They secured Erdoğan’s blessing to dramatically hike borrowing costs and take other steps aimed at untangling a complex web of regulations that stifled business and investment.
Investors appeared relieved when Erdoğan stood by Erkan on Wednesday.
“Using irrational rumors, they are launching campaigns aimed at destroying the climate of trust and stability that we achieved with great difficulty in the economy,” Erdoğan said.
“We don’t care about these merchants of mischief.”
Erkan was attending an investor conference in the United States when rumors about her father began to spread.
But she notably took her place next to other top ministers greeting Iranian President Ebrahim Raisi during his state visit to Ankara on Wednesday.