The Central Bank of Turkey (CBT) has kept its key interest rate at 50% per annum for the eighth consecutive time—a 20-year high. This decision aims to curb inflation, which reached 48.58% in October
The CBT emphasizes that such a high rate is a crucial tool for controlling price growth. The regulator’s goal is to reduce inflation to 5% in the medium term, though achieving this amidst current economic instability and external pressures is a significant challenge.
Why is the rate so high?
- Inflationary pressure: Turkey is experiencing one of the most challenging economic periods in its history. Rapidly rising prices for food, energy, and services necessitate a strict monetary policy.
- Support for the national currency: A high interest rate makes the Turkish lira more attractive to investors, helping to stabilize its exchange rate.
- Control over lending: The 50% rate limits excessive loan growth and helps curb consumer demand, which is essential for reducing inflation.
What’s next?
Experts believe that while this monetary policy helps slow inflation, it imposes significant strain on businesses and households. The high cost of loans restricts economic activity, and international investors remain cautious due to political instability and unconventional economic decisions.
Against this backdrop, the Central Bank of Turkey reiterates its commitment to lowering inflation to the target level. However, achieving this without structural reforms in the economy will be extremely difficult.