Turkish Lira Jumps 7% after Central Bank Hiked Rates to 25%

The exchange rate of the Turkish lira against the dollar jumped by more than 7%, after the Turkish Central Bank's decision to raise interest rates by more than expectations, which gave a strong indication that the Turkish Central Bank is in the process of strengthening attempts to tackle inflation and support the distressed local currency.

The Turkish lira reversed its losses after the decision and then continued its rise, rising by more than 7% against the dollar. The currency was trading at 25.48 per dollar as of 15:52 pm Istanbul time.

At the end of its meeting today, the Central Bank of Turkey announced that it would raise the interest rate by 750 basis points, to 25%, on “repo” repurchases for a week, in the largest increase since 2018, and recording the highest interest level since 2004.

In a statement, the Turkish Central Bank confirmed its continuation of the monetary tightening process in order to reduce inflation as soon as possible, strengthen its expectations and control pricing behavior.

He added that the Monetary Policy Committee expects a decline in the inflation rate next year, in line with its reports, and with the effect of the monetary tightening steps.

Since winning re-election last May to extend his rule for a third decade, Erdogan has vowed to change course to rein in inflation and win over investors.

Markets welcomed Thursday's interest rate announcement. Bank stocks rose and the cost of insuring Turkish debt against default for five years fell to less than 400 basis points.