Turkey’s central bank changes interest rate policy after critical elections

Last Thursday, the Turkish Central Bank announced its expected decision on interest rates, raising the policy rate from 8.5 percent to 15 percent. The decision representing a sharp shift in the financial policy advocated by President Recep Tayyip Erdoğan came shortly after Hafize Gaye Erkan was appointed to run the central bank.

In a statement, 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.” But the rate hike was below the expectations of the financial markets.

The Turkish Lira fell more than 5 percent on Thursday, sending 1 US dollar above 25 TL. Before the second round of the presidential elections held on May 28, the US dollar exchange rate was 19.97 TL. This means the Turkish currency has depreciated by around 30 percent against the dollar since the election.

The devaluation of the TL will further exacerbate the already high cost of living and the decline in workers’ purchasing power. The tight monetary policies and interest rate hikes that have been in place in major capitalist countries are expected to have a negative impact on economic growth, employment and wages.

A screen displays exchange rates in a currency exchange shop in a commercial street in Istanbul, Turkey, Thursday, April 14, 2022. [AP Photo/Francisco Seco]

In a statement before the elections, the World Socialist Web Site warned of the dangers awaiting the working class in Turkey, stating: “In reality, the economic crisis and the social attacks of the ruling class will deepen, whichever candidate wins.”

The Central Bank in Turkey last raised the policy rate in March 2021 to 19 percent. At a time when central banks around the world were raising interest rates, President Erdoğan’s Justice and Development Party (AKP) government has continuously lowered them.

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