The “Turkish Central” surprises the markets by raising the interest 350 basis points to counter the fluctuations of the lira

The Turkish Central Bank raised the main interest rate of 350 basis points to 46 % from 42.5 % today, Thursday, in a sudden move that ended the cash facilitation course and the lira was slightly strengthened in the wake of fluctuations in the market due to the arrest of the mayor of Istanbul Akram Imamoglu last month.

The Central Bank once again increased the interest rate on lending for one night to 49% from 46%, after it was already raised last month in a non -advanced meeting for monetary policy makers.

The Central Bank began facilitating monetary policy in December when the interest rate was 50%, after intense tightening efforts since mid -2023 to control the high prices and a series of currency collapses that lasted for years.

The decision was surprising to the markets, as only 3 out of 23 analysts expected it, including Bloomberg, including the HSBC Asset Management and Goldman Sachs.

For its part, the Turkish Central Bank stressed that it may tighten the monetary policy more in the event that a significant and continuous deterioration in inflation will occur.

“The committee will adjust the interest rate carefully at each meeting separately, with a focus on inflation expectations,” said the Central Bank of Central Policy Committee when announcing its decision on the interest rate.

Spending 50 billion dollars
This critical move comes in the aftermath of an emergency meeting held by the bank last month after the collapse of the Turkish lira after Istanbul’s mayor Akram Imamoglu, the most prominent opponents of Turkish President Recep Tayyip Erdogan, which led to a severe wave of sale in the markets.

Economists estimated that the bank spent about 50 billion dollars of its reserves to support the lira and prevent it from slipping, with political tensions escalating internally, and the increase in external concerns about the repercussions of American customs duties on Türkiye and other countries.

Despite the pressure, the central interventions succeeded in stabilizing the exchange rate of the lira at about 38 pounds against the dollar since the initial decline, but this stability came at the expense of a major attrition of foreign reserves, according to an analysis of “Bloomberg Economics”.

The inflation rate
The annual inflation rate in the formula is greater than expected in March, although the data did not include the effects of the recent political and economic turmoil caused by the detention of Ighoglu.

The Turkish Central Bank wrote in its statement its commitment to the strict monetary policy position, stressing that the interest rates will be adjusted with caution during the coming period based on inflation data in Türkiye and market developments, with the aim of achieving permanent stability in prices.

In March, the annual price growth recorded 38.1%, compared to 39.1% in February, according to the Turkish Statistics Authority (Turkstat). While the middle of expectations in a survey conducted by Bloomberg at the time reached 38.7%.