This is an important economic policy change in Türkiye. The central bank will raise its key rates for the first time in two years. They go from 8.5 to 15%. A sharp increase to counter inflation. A little over a month after his re-election, Recep Tayyip Erdogan is turning a corner, but he is not sure that is enough.
The Turkish central bank had to strike hard to reassure the markets. It raises its key rates to 15%. It’s a little less than expected, but a radical remedy to curb inflation. At the helm is Mehmet Simsek, the new finance minister, a supporter of a return to economic orthodoxy.
This measure will not be enough, according to Deniz Unal, a specialist in the Turkish economy at Cepi. ” By raising interest rates, we imagine attracting capital. However, this increase is well below inflation. Official inflation is 40% and the interest rate is 15%. Under these conditions, foreign investors would not want to invest in Turkey because they would have negative remuneration “, she explains.
Erdogan’s strategy will not change
Recep Tayip Erdogan is on a hook. Between recession or decline in inflation, the choice is difficult. This rise in rates is a decoy, the strategy will not change, believes Deniz Unal. ” Erdogan wants to keep his electorate by granting him advantages. To continue this growth and for people to buy again, he, through the public banks, continues to distribute money. So he still needs to keep going, with interest rates not too high “, she says.
The markets were expecting an even sharper rise. The Turkish lira continued to depreciate after this announcement.
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