Tight monetary policy announced: Turkish central bank increases interest rates

Tight monetary policy announced
Turkish central bank increases interest rates

The central bank of Turkey is fighting against inflation. In November inflation was more than 14 percent. The course is contrary to demands made by President Erdogan.

The Turkish central bank has increased the key interest rate again, reacting to the persistently high inflation and the fall in the rate of the currency. The central bank in Ankara announced that the key interest rate will be raised by two percentage points to 17 percent. At the same time, it announced a tight monetary policy until strong indicators point to a permanent decline in inflation. The bank's monetary policy committee has seen a partial recovery in the economy since the third quarter and points to the positive developments in a corona vaccine. On the other hand, given the rising numbers of infected people, uncertainties weighed on the global economy.

In November the Turkish President Recep Tayyip Erdogan exchanged the central bank governor in view of the falling national currency, the lira. The new boss, Naci Agbal, had already raised the key interest rate significantly by 4.75 percentage points in November and thus opposed the currency collapse. The lira recovered recently.

Before that, the country's central bank was known for avoiding tighter monetary policy, particularly in the form of higher interest rates, as much as possible. Erdogan had previously put great pressure on the central bank and always advocated low interest rates.

According to the Turkish statistical office, the annual inflation rate in November was 14.3 percent. The Turkish lira rose significantly after the decision on all major currencies. In return, the US dollar fell to its lowest rate since mid-November.