ISTANBUL — Turkey’s central bank surprised financial markets on Thursday with its first interest rate hike in almost two years in a bid to rescue the spiraling lira currency and rein in inflation, defying President Recep Tayyip Erdogan, an outspoken critic of higher rates.

Policy-makers lifted the benchmark one-week repo rate by two percentage points to 10.25% after the lira hit yet another record low against the dollar earlier in the day. The currency has lost a fifth of its value this year amid fears that Erdogan’s quest for growth at all costs could unleash economic havoc.

The central bank’s decision revived the currency, which gained 1%. Economists had expected the bank to leave interest rates untouched at 8.25%, according to surveys by Bloomberg and Reuters.

Inflation is nearly 12%, which means the real interest rate in Turkey is still negative, since inflation is well above the premium investors earn on lira-denominated assets. Foreigners have dumped more than $5 billion worth of Turkish stocks this year, and that outflow, coupled with a flight from bonds, a slump in direct investment and the loss of tourism revenue during the coronavirus pandemic, has heightened the risk of a balance-of-payments crisis as Turkey imports more than it exports and its private and public debt balloons.