Turkish Lira Bounce Back on Aggressive Rate Hike

TURKEY, Sept. 4 – The Turkish lira was hovering around 26.7 per USD, slightly stronger than the recent record lows in response to the central bank’s decision to raise the key interest rate by a larger-than-expected 750 bps to 25% on August 24th.

This move pushed borrowing costs to their highest level since January 2004.

The decision was aimed at combatting surging inflation and represents the most definitive shift towards adopting more conventional policies following years of unorthodox approaches during President Erdogan’s tenure.

In August, the annual inflation rate accelerated for the second consecutive month to 58.9%, up from 47.8% in July, and surpassing market forecasts of 55.9%.

This marked the highest reading since December last year, primarily attributed to tax rate hikes, rising food prices and the depreciation of lira.

In light of these developments, the central bank also revised its inflation forecasts to 58% for this year, 33% in 2024, with an anticipated gradual reduction to 15% by 2025.