‘Actually no interest hike’: Economists applaud Turkish central bank’s surprising move

Economists welcomed the Central Bank of the Republic of Türkiye’s (CBRT) unexpected interest rate hike of 350 basis points during its monetary policy meeting on Thursday, describing the decision as a well-timed response amid escalating global uncertainties.

The CBRT increased its benchmark policy rate from 42.5% to 46%, marking its first rate hike in 13 months. In addition, it raised the overnight lending rate from 46% to 49% and the overnight borrowing rate from 41% to 44.5%, thereby widening the interest rate corridor.

This decision came despite market expectations that the central bank would hold the policy rate steady in April.

Several economists underscored that the move does not technically constitute a new interest rate hike. They noted that since March 20, the central bank had effectively tightened monetary policy by suspending one-week repo auctions and providing liquidity through overnight facilities at 46%.

Following the latest decision, the CBRT announced that it would resume one-week repo auctions, with the new policy rate of 46% applying to these operations.

‘Resilience of Turkish lira strengthens’

Veteran economist Dr. Mahfi Egilmez described the central bank’s move as the “right decision,” highlighting that by raising the overnight borrowing rate to 44.5% and the overnight lending rate to 49%, the CBRT has expanded the interest rate corridor.

Economist Iris Cibre stated that with this move, the central bank demonstrated its independence.

Economist Ugur Gurses emphasized the operational significance of the decision, noting that it would bring relief to monetary policy implementation.

In a social media post, Gurses wrote, “Raising the policy rate to 46% will not fundamentally change the existing stance but will offer operational flexibility. The central bank has shown it can also revise the benchmark rate. When it eventually begins cutting rates, there will be no questions as to why.”

Marek Drimal, Central and Eastern Europe, Middle East and Africa Strategist at Societe Generale, remarked that the CBRT’s decision is significant for strengthening investor confidence in the Turkish lira.

Drimal noted that raising the overnight lending rate to 49% could bring effective interest rates close to the levels seen before the central bank began cutting rates in December 2024. He also forecasted that with support from foreign currency inflows during the upcoming tourism season, the USD/TRY exchange rate could stabilize around 38.5 in the coming months.

Piotr Matys, Senior FX Analyst at In Touch Capital Markets, described the central bank’s move to raise the overnight lending rate to 49% as a clear indication of its determination to stabilize the Turkish lira.