Turkey’s central bank raises interest rate less than expected, to 17.5%

Turkey’s central bank on Thursday hiked its key interest rate by 250 basis points to 17.5%, coming in below analyst forecasts as the country’s monetary policymakers embark on a long and painful mission to tackle double-digit inflation.

The Turkish lira fell about half a percentage point against the dollar on the news, trading at 26.92 to the greenback. Earlier this week, the lira hit a fresh record low of 26.9 against the dollar over market concerns that the coming rate rise would be less than expected. The currency has lost 30% of its value against the dollar this year.

In June, Turkey lifted its interest rate for the first time in more than two years, after Turkish president Recep Tayyip Erdogan appointed policymakers who had vowed to implement economic orthodoxy to turn around the inflation picture.

Turkey steadily lowered its policy rate from 19% in late 2021 to 8.5% last March, as inflation ballooned, breaching 80% in late 2022 and easing to just under 40% in June.

Traditional economic orthodoxy holds that rates must be raised to cool inflation, but Erdogan — a self-declared “enemy” of interest rates who calls the tool “the mother of all evil” — vocally espoused a strategy of lowering rates instead.