FX.co ★ Turkey Unexpectedly Delivers Aggressive Rate Hike

In its April 2025 session, the Central Bank of Turkey unexpectedly increased its benchmark interest rate by 350 basis points to 46%, defying market expectations of maintaining the previous rate. This decision significantly deviates from the trend of three successive rate cuts in prior meetings. The bank emphasized that monetary policy will remain stringent until price stability is firmly established. The Monetary Policy Committee highlighted that recent indicators suggest domestic demand has surged beyond expectations at the beginning of the year, justifying the need for a tighter monetary stance, even though underlying inflation showed a decrease in March. Additionally, the Committee expressed concerns that increasing protectionism in global trade could jeopardize the disinflation momentum that had previously allowed for rate reductions. While not explicitly stated, this rate hike also aims to mitigate the lira's depreciation, which intensified after President Erdogan imprisoned his primary political opponent, causing the currency to weaken significantly since the central bank's last rate cut.