The International Trade Council (ITC) recognizes the substantial interest rate hike enacted by the Turkish Central Bank as an important move towards more traditional economic strategies to tackle persistent high inflation. The 6.5 percentage points increase to 15% signifies a shift in monetary policy and could be an early indicator of economic recovery.
Despite the rate hike being the first since March 2021, it fell short of market expectations. However, the recent appointment of globally renowned professionals to lead Turkey's Central Bank and Finance Ministry has seen the nation moving away from President Recep Tayyip Erdogan's unconventional economic approach.
With the shift in economic direction, Turkey aligns itself with the global trend as central banks worldwide are reacting to inflationary pressures by raising interest rates. This move is particularly critical in response to challenges triggered by the pandemic's aftermath and geopolitical events such as Russia's invasion of Ukraine.
The ITC also notes that President Erdogan's prior aversion to high interest rates has raised questions about the independence of the Turkish Central Bank. The bank’s commitment to further tightening monetary policy until significant improvements in inflation outlook are achieved indicates a newfound willingness to adopt more conventional economic strategies.
However, Turkey’s economic situation remains precarious, given the below-expected rate hike and concerns about whether the new leadership can enforce the needed policy changes.
The ITC observes that Turkey's policy changes come at a crucial time, given the strain many households face due to the cost-of-living crises. A more balanced and sustainable approach to economic policy, which prioritizes not just growth and employment, but also price stability, is needed to address the country’s economic challenges.
The Turkish lira's depreciation due to a lower-than-expected rate hike is indicative of the challenging economic environment. Yet, the ITC is optimistic that a persistent commitment to conventional economic policies can usher in a much-needed turnaround for the Turkish economy.
For more information, please visit the ITC website.
About the International Trade Council The International Trade Council is a non-partisan, global peak-body chamber of commerce, providing resources, networking opportunities, and advocacy across 176 countries worldwide. It works to promote trade and investment growth, ethical business practices, and intellectual property rights protection.