Turkey's Central Bank Raises Interest Rate to 50%

Turkey's central bank raised interest rates on Thursday, a surprise decision just before elections that shows the urgent need to support the lira after the sell-off.

The Monetary Policy Committee, led by Governor Fatih Karahan, raised the one-week repo rate to 50% from 45%.

The lira strengthened after the decision. It is likely that the rapid decline in the value of the lira and deteriorating inflation expectations forced the central bank to make the decision just two months after policymakers announced the end of the tightening cycle. Before the rise, the Turkish lira was the worst performing month among emerging market currencies tracked by Bloomberg, with a loss of about 3.7% against the dollar.

With local elections approaching on March 31, the biggest concern was a repeat of the decline after last year's presidential election, when it fell by as much as 7% in one day.

The sudden rise in consumer prices last month brought the spotlight back to inflation, which is on track to exceed 70% levels.