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Turkey pushes interest rates up to highest level since 2003

A worker counts Turkish liras banknotes in an exchange currency shop in Istanbul, Turkey, Tuesday, June 20, 2023.
A worker counts Turkish liras banknotes in an exchange currency shop in Istanbul, Turkey, Tuesday, June 20, 2023. Copyright Francisco Seco/AP
Copyright Francisco Seco/AP
By James Thomas
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The central bank said that rocketing inflation was above expectations in the past couple of months and that to combat the trend, more interest rate hikes are likely.

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The Turkish central bank has once again hiked interest rates in the country, pushing its policy rate up five points to 30%, in a continued effort to curb soaring inflation.

The bank said on Thursday that the increase was necessary in the face of services inflation and surging oil prices. It means that the country's interest rate is sitting at a level not seen since 2003.

The central bank said therate of inflation in Turkey, which rocketed to 58.9% in August, was above expectations in the past couple of months and that to combat the trend, more interest rate hikes are likely.

"Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved," the bank said.

Turkey's economy has been in tatters for the past couple of years, with an ever-weakening lira and accelerating costs. While inflation has fallen since it hit a 25-year record high of 85.5% last November, it's quickly been climbing again since June.

Interest rates in the country have naturally followed suit.

The central bank has previously said that inflation will reach 58% by the end of 2023 -- more than double the previous projections -- before returning to stability from 2025.

Thursday's announcement could be seen as evidence of President Recep Tayyip Erdoğan's newfound support of raising interest rates, as revealed by members of his economic team earlier in September.

Erdoğan had long been a proponent of slashing interest rates, and has in the past fired central bank governors for failing to fall in line with his rate-cutting policies. 

A busy couple of days for central banks

The Turkish central bank's decision to push up interest rates follows hot on the heels of similar decisions by central banks across Europe, as they all continue to grapple inflation.

Norway, Sweden, Switzerland and the UK all made interest rate announcements on Thursday, but while the former two decided to raise rates, the latter pair froze them.

Similarly, across the pond, the US Federal Reserve yesterday kept its policy rate at 5.25%-5.5%.

Last week, the European Central Bank and Denmark's national bank also said they would push up interest rates.

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