Turkey’s central bank raised interest rates dramatically on Thursday, September 13th, in an effort to curb inflation and halt the decline in the lira.
As reported by the New York Times, Turkey’s benchmark interest rate rose to 24%, up from 17.75%, and this quickly helped the Turkish lira strengthen against the dollar. The currency had dropped to record lows earlier in the summer following concern that inflation was accelerating and that President Recep Tayyip Erdogan was taking too active a role in the management of the economy, specifically by resisting any interest rate rise.
In a statement announcing its move, the Turkish central bank said there were “upside risks” to inflation, despite “weaker domestic demand conditions.” It added that, as a result, it had “decided to implement a strong monetary tightening to support price stability.”
The decision comes after a turbulent period for Turkey’s economy. August saw a plunge in the lira’s value, which was exacerbated by a series of diplomatic and trade disputes with the United States. Those factors, coupled with a wider decline in emerging market currencies, served to expose economic pressures that had accumulated for a long time, and the lira lost a quarter of its value as a result.