Turkish Central Bank Governor Takes Bold Step: Interest Rate Doubled in Effort to Stabilize Economy

Hafiza Gaya Erkan, the new Governor of the Central Bank of Turkey, is expected to announce the doubling of the interest rate. This is part of a wider effort by Turkey’s new finance team to stabilize the country’s economy, which has been struggling with unchecked inflation, depleted foreign reserves, and wide current account deficits. Analysts expect the interest rates to be raised to between 20% and 25% from 8.5% as soon as this month. According to Goldman Sachs, a “fully orthodox policy-maker” would raise rates to 40%, the current level of deposit rates.

The central bank’s foreign currency reserves have been depleted by unorthodox policies, and at least $23bn was used to prop up the lira before May’s election. The current account deficit has been financed in large part through the central bank’s foreign currency reserves.