Turkey’s central bank raises interest rate to 17%

ISTANBUL — Turkey’s central bank raised the benchmark interest rate today for a second time in a row under its new chief.

The bank announced after its Monetary Policy Committee meeting that it was raising the one-week repo rate — the rate by which it lends to commercial banks — by 200 basis points to 17%. The decision follows the November hike of 475 basis points.

A bank statement said the hike was enacted “to implement a strong monetary tightening, in order to eliminate risks to the inflation outlook, contain inflation expectations and restore the disinflation process as soon as possible.”

Turkish President Recep Tayyip Erdogan ousted the previous central bank chief in November, after the lira dipped to record lows and appointed Naci Agbal, a former finance minister, to the post.

The former chief, Murat Uysal, had reduced interest rates from 2018 highs, in line with Erdogan’s aversion to high rates.

Markets have responded positively to Agbal and his promise for more orthodox, tighter policy. The lira has strengthened against the dollar since then, following a months-long plunge due to concerns over the management of the economy and central bank reserves, the COVID-19 pandemic and diplomatic tensions.

Agbal’s appointment was followed by the surprise resignation of Erdogan’s son-in-law and finance minister Berat Albayrak.

Annual inflation stands above 14% and unemployment at around 13%, although opposition parties and economists caution that the official figures released do not represent the true picture.