In a surprising move on Thursday, Turkey's central bank ramped up its interest rate to a whopping 25%, signalinga departure from the unconventional economic policies of President Recep Tayyip Erdogan.
This unexpected 7.5 percentage point hike comes hot on the heels of last month's increase from 15% to 17.5%. While the majority of market watchers had anticipated a bump to 20%, the bank went further.
This bold strategy had an immediate impact with the Turkish lira, bolstering its value by 1.5% against the dollar. This reveals the central bank's intensified efforts to combat inflation and stabilize the shaky lira.
Following his challenging victory in the May elections, which occurred amid one of Turkey's most severe cost-of-living crunches in recent memory, Erdogan introduced market-savvy economists into his administration.
Their mission has been to combat the staggering inflation that touched 85% annually last October and showed signs of surging once more. A series of measures, including permitting the lira to decline against the dollar and executing more intricate tactics, were taken to stabilize the economy and regain the confidence of consumers and international investors alike.
What does this mean for me?
Under the guidance of ex-Wall Street professional Hafize Gaye Erkan, the central bank previously raised its benchmark rate from 8.5% to 15% in June. However, both Erkan and Finance Minister Mehmet Simsek have been proponents of a more cautious, phased approach, aiming to boost market trust without inflicting immediate economic discomfort.
Forecasters at the central bank predict that the annual inflation rate might peak at around 60% between April and June of the upcoming year.