Inflation in Turkey hit an eye-watering 61.36% last month.
Turkey’s central bank delivered another huge interest rate hike on Thursday as it tries to curb double-digit inflation that has left households struggling to afford food and other basic goods.
The bank pushed its policy rate up by 5 percentage points, to 40%, marking its sixth big interest rate hike in a row focused on beating down inflation that hit a staggering 61.36% last month.
However, the bank said its rate hikes would soon end.
“The current level of monetary tightness is significantly close to the level required to establish the disinflation course,” the bank said. “Accordingly, the pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time.”
President Recep Tayyip Erdogan has long been a proponent of an unorthodox policy of cutting interest rates to fight inflation and has fired central bank governors who resisted his rate-slashing policies.
That runs counter to traditional economic thinking, and many blamed Erdogan’s unorthodox methods for the economic turmoil that has included a currency crisis and an increasingly high cost of living.
The ensuing economic crisis in Turkey has hit the population hard, potentially threatening the huge economic progress the country has made since the early 2000s.
Other central banks around the world have raised interest rates rapidly to target spikes in consumer prices tied to the rebound from the COVID-19 pandemic and then Russia’s war in Ukraine.
Following Erdogan’s reelection in May, he appointed a new economic team, which has quickly moved toward reversing his previous policy of keeping interest rates low.
The team includes former Merrill Lynch banker Mehmet Simsek, who returned as finance minister, a post he held until 2018, and Hafize Gaye Erkan, a former US-based bank executive, who took over as central bank governor in June.
Under Erkan’s tenure, the central bank has hiked its main interest rate from 8.5% to 40%.