Turkish central bank hikes interest rate to 42.5% to combat inflation

Ankara (Turkey): Turkey’s central bank hiked its key interest rate by 2.5 percentage points on Thursday as part of its efforts to combat high inflation.

The bank’s Monetary Policy Committee raised its benchmark rate to 42.5 per cent, delivering its seventh interest rate hike in a row to tame inflation, which rose to 61.98 per cent last month. But the bank signalled that the rate hikes which took borrowing costs from 8.5 per cent to the current 42.5 per cent could soon end.

“The committee anticipates to complete the tightening cycle as soon as possible,” it said. “The monetary tightness will be maintained as long as needed to ensure sustained price stability,” it added

The series of rate hikes came after President Recep Tayyip Erdogan a longtime proponent of an unorthodox policy of cutting rates to fight inflation reversed course and appointed a new economic team following his re-election in May.

The team includes former Merrill Lynch banker Mehmet Simsek, who returned as finance minister, a post he held until 2018, and Hafize Gaye Erkan, a former US-based bank executive, who took over as central bank governor in June.

Prior to that, Erdogan had fired central bank governors who resisted his rate-slashing policies, which economists said ran counter to traditional economic thinking, sent prices soaring and triggered a currency crisis.