Turkiye's Central Bank Raises Interest Rate to 25 Percent

"The Monetary Policy Committee has decided to raise the policy rate (the one-week repo auction rate) from 17.5 percent to 25 percent," the central bank said in a statement.

The central bank noted recent indicators point to a continued increase in the underlying trend of inflation.

The policy rate will be determined in a way that will create monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term, the central bank said.

"Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved," it said.

The central bank embarked on a tightening cycle in June, after Turkish President Tayyip Tayyip Erdogan appointed a new economic team, as the country seeks to move away from its unorthodox strategy of maintaining low-interest rates even when inflation soars.

To fight rampant inflation, Turkiye increased its policy rate twice from June to July. On June 22, the central bank hiked the benchmark interest rate from 8.5 percent to 15 percent. On July 20, it increased its policy rate by 250 basis points to 17.5 percent.

To address the rising cost of living and the devaluation of the Turkish currency, Erdogan appointed former U.S.-based bank executive Hafize Gaye Erkan as the governor of the central bank, and Mehmet Simsek, a well-known former banker, as the treasury and finance minister.

4155/v