Turkey Raises Interest Rates: Lira Gains Against USD, Euro

• Turkey’s Central Bank has increased its key interest rate to 25%.
• Economists expected a smaller increase than what was implemented.
• Turkish Lira gained slightly against the US Dollar in response.

Interest Rate Increase in Turkey

Turkey’s Central Bank has taken an aggressive stance, increasing its key interest rate from 17.5% to 25%, higher than the 20% that economics had anticipated. Following the news, the Turkish Lira has gained slightly against both the US Dollar and Euro.

President Erdogan’s Unconventional Economic Policies

President Recep Tayyip Erdogan initially initiated a series of interest rate cuts, which were dubbed “Ergonomics” by his critics. However, after his re-election in May 2021, he assembled a new economic team and appointed Hafize Gaye Erkan as first woman central bank governor, signaling a return to more orthodox approaches.

Inflation Rates in Turkey

The recent decision to raise borrowing costs comes amidst an inflation rate of 47.83% in July which peaked at over 85% in October 2020 however independent economists argue that the actual inflation rate almost reached 123%. Despite this high inflation rate, President Erdogan still attempted to push rates down however following changes within his economic team it appears that trend is now changing direction.

Impact on Turkish Lira

The struggling Turkish Lira strengthened against the US dollar and Euro following the announcement of this hike in interest rates; providing some relief for investors who have suffered due to uncertainty within Turkey’s economy over recent months. This could be seen as a positive sign for markets going forward as Erdogan may be returning back towards more traditional monetary policies .


Turkey’s central bank increasing its key policy rate by 7 percentage points indicates a move away from President Erdoğan’s unorthodox economic policies and signals an attempt at stabilizing their economy despite ongoing high levels of inflation – resulting in an increase of value for their currency against major world reserve currencies such as USD and EURO..