Turkey hikes interest rate to 46% amid turmoil over Imamoglu’s arrest
The rate hike marks the first since March 2024, amid growing economic turmoil following the arrest of Istanbul Mayor Ekrem Imamoglu.
ANKARA — The Central Bank of Turkey on Thursday hiked its benchmark interest rate to 46% from 42.5%, marking a return to monetary tightening after a year. The move comes amid growing economic turmoil following the arrest of Istanbul Mayor Ekrem Imamoglu.
Thursday’s meeting by the bank’s Monetary Policy Committee was the first since Imamoglu, a presidential contender from the main opposition Republican People’s Party, was detained on March 19 and subsequently jailed on March 23 on corruption charges. His arrest triggered a roughly 12% drop in the Turkish lira against major currencies, prompting the Central Bank to sell nearly $50 billion in foreign reserves to slow the currency's slide.
In the statement announcing the rate hike, the bank reaffirmed its commitment to bringing inflation under control.
“Inflation expectations and pricing behavior continue to pose risks to the disinflation process,” the statement by the bank’s Monetary Policy Committee read. “A tight monetary policy stance will be maintained until a lasting decline in inflation and price stability are achieved.”
The bank also raised the overnight lending rate from 46% to 49% and the overnight borrowing rate from 41% to 44.5%.
The decision to hike rates was unexpected. A majority of economists surveyed in a Bloomberg poll earlier this week thought the bank would hold the interest steady at 42.5%.
Following the announcement, the Turkish lira saw a modest rebound. It was trading at 38.10 to the dollar at the time of writing, up slightly from 38.17 earlier in the day.
The move comes after three consecutive rate cuts since December, as inflation eased. Year-on-year inflation fell in February to 38.10% — the lowest in nearly two years, according to official data. In that three-month easing cycle, the Central Bank lowered its benchmark rate from 50% to 42.5%.
Thursday’s hike marks Turkey’s first increase since March 2024. The Central Bank raised interest rates from 8.5% to 50% in an aggressive run of hikes between June 2023 and March 2024 in a return to orthodox monetary policy, following President Recep Tayyip Erdogan’s post-election pivot away from his long-standing, unorthodox view that lower interest rates would reduce inflation.
This developing story has been updated since initial publication.
