Turkey’s central bank surprises with 350-basis-point rate hike

Turkey’s central bank surprised markets on Thursday when it raised its key interest rate, the one-week repurchase rate, from 42.5% to 46%, ending the easing cycle it began in December of last year.

The decision comes on the back of economic disruption due to U.S. tariffs and major political unheaval and investor flight following the arrest of Istanbul mayor and opposition leader Ekrem Imamoglu in March.

“The decisiveness regarding tight monetary stance is strengthening the disinflation process through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations,” Turkey’s Monetary Policy Committee wrote in the statement accompanying its decision.

The committee cited “potential effects of the rising protectionism in global trade on the disinflation process through global economic activity, commodity prices and capital flows,” and said “the tight monetary stance will be maintained until price stability is achieved via a sustained decline in inflation.”

Annual inflation in Turkey came in at 38.1% in March.  

The rate hike comes in the face of significant foreign currency depletion, as the Turkish central bank spent as much as $25 billion in three days following the arrest of Imamoglu and ensuing protests on March 19 to defend the lira, which briefly ropped to a record low of more 40 to the U.S. dollar. Turkish markets initially plunged on news of the arrest, and the country’s government on March 23 banned short selling and relaxed buyback rules in an effort to bolster stocks.