Turkiye’s Central Bank Defies Politics to Combat Inflation

Turkiye's central bank raised its key interest rate, halting a three-month easing streak amid persistent inflation and financial turbulence. The move is seen as reinforcing the bank's credibility, counteracting the political pressure for lower rates. However, credit growth limits pose economic risks, potentially leading to higher unemployment.

Turkiye's central bank has taken decisive action by raising its key interest rate by 3.5 percentage points, breaking a three-month trend of rate cuts. This move aims to tackle persistent inflation and address the financial challenges posed by the arrest of Istanbul's mayor and global tariff impacts.

The Monetary Policy Committee increased the benchmark one-week repo rate to 46 percent from 42.5 percent. Experts suggest this may bolster the bank's credibility, historically criticized for political interference in decision-making processes.

Financial analyst Iris Cibre praised the rate hike, noting it signifies greater autonomy for policymakers. Although President Erdogan prefers lower interest rates, the central bank's actions counter this preference, acknowledging economic threats from limited credit growth and potential prolonged economic slowdown.

(With inputs from agencies.)