Turkish Central Bank Hikes Interest Rate

Dr. Mike Campbell

With many central banks maintaining interest rates at or near the historic low levels that they sank to during the Global Financial Crisis, the news that one central bank has risen rates by a whopping 6.25% might come as a shock. The fact that the new rate rise pushes its interest rate up to 24% surely shows that its economy is under very considerable strain. The central bank in question is TCMB, Turkey’s central bank.

The value of the Turkish Lira has been under pressure, partially because of a dispute with the USA over the detention of US citizen and pastor, Andrew Brunson. Brunson has been in detention for two years over allegations of his links to political groups opposed to Turkey’s president Tayyip Erdogan. The USA is trying to force his release via the application of tariffs on Turkish exports of metal (steel and aluminium).

The Turkish Lira (TRY) started the year at 3.79 to the Dollar, prior yesterday’s rate hike, this had slipped to a record low of 6.77 before recovering somewhat. The decline of the Turkish Lira against the Dollar this year has seen 38% wiped off its value. Perversely, this makes Turkish exports to the USA substantially cheaper, off-setting Trump’s metal tariffs, the downside being that Turkish imports of anything priced in Dollars have become much more expensive to Turkish consumers. Yesterday’s move has pushed TRY up against the Dollar to stand at 6.09 currently.

TCMB had failed to take action on interest rates in July, a decision which was blamed for a 25% decline in TRY against the Dollar.

Inflation in Turkey is running at 17.9%, a record high level since 2003. The significant jump on the TCMB interest rate should put downwards pressure on inflation going forward. Unemployment in Turkey currently stands at 9.7%.

About the Author
Dr. Mike Campbell
Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.
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