Important decision: Turkey’s Central Bank announces interest rate increase

The central bank raised its policy interest rate by 200 basis points from 8.25 per cent to 10.25 per cent. The dollar fell to £ 7.55 and the euro to £ 8.80. After a 2-year break, the bank decided to increase its main instrument, the policy interest. It had already pulled the funding interest to 10.65 percent with an implicit interest rate increase for some time.

The central bank raised its policy interest rate from 8.25 percent to 10.25 percent. The general expectation of the markets was that the policy interest rate would not change, that the upper band of the interest rate corridor, which is interpreted as a “covered interest rate increase,” could be raised. The Central Bank had dropped its policy interest rate to 8.25 percent and had not made changes in June, July and August.

Central Bank Governor Murat UYSAL who took office in July 2019, preferred to increase policy interest rates for the first time during his tenure. The last time the central bank raised rates was in September 2018.

The CBRT had actually been taking implicit interest rate hike steps for some time. The CBRT’s average funding interest, which fell to 7.34 per cent on July 16, had risen to 10.65 per cent as of yesterday.

Thus, with loose monetary policy, the CBRT, which funded the market at a cost of less than 8.25 percent – which is the policy interest – stepped back upon the harsh depreciation of the TL and the high course of inflation, increasing the funding interest by more than 300 basis points.