Following President Recep Tayyip Erdogan’s controversial personnel decisions in Turkish economic policy, there was uncertainty about future monetary policy. In the past three months alone, the central bank has raised the key interest rate four times under its new boss Hafez Gay Erkan. It increased by a total of 2,150 basis points and rose to 30 percent – the highest level in two decades. This comes despite Erdogan being known for his apparent reservations about raising interest rates. He called her “the mother of all evil” more than once. The key interest rate was earlier cut to 8.5 percent, although inflation was projected to rise to 85 percent in 2022.
Nevertheless, inflation remains high, making further interest rate increases likely. Before the latest interest rate decision, there was speculation of an even higher rise in the cost of money. However, Erkan prefers a policy of gradual adjustment. It remains to be seen how monetary policy will evolve under Erdogan’s influence.
The Turkish President has so far supported the new course. He strengthened Ercan’s position on the central bank’s Monetary Policy Committee by appointing three new deputies. Recently, Erdogan explicitly acknowledged higher interest rates when presenting an economic paper. He said that with their help his government would bring down inflation to single digits by 2026. This has increased market confidence. The World Bank also praised Turkey’s new, more realistic economic policies.