Turkish Central Bank raises interest rate by 250 basis points

The Turkish Central Bank has increased its policy interest rate by 250 basis points to 42.5 percent.

The Turkish Central Bank released a statement on Thursday that its monetary policy committee decided to swiftly conclude monetary tightening measures.

To support this process, the committee "will continue quantitative tightening by expanding the array of sterilization tools used."

Additionally, "Turkish lira deposit purchase auctions will be organised to strengthen the monetary transmission mechanism and increase the diversity of sterilisation tools," the statement continued.

The central bank also clarified that there will be no adjustments to the maximum interest rates on credit cards and the maximum commission rates for merchants.

The key interest rate, which stood at 8.5% pre-election, is now 42.5%.

Reserves hit all-time high

The Turkish Central Bank also revealed on Thursday that its international reserves hit an all-time high of $142.53 billion last week, as of December 15.

The reserves increased by $1.15 billion on a weekly basis as of December 15, the bank announced.

Foreign currency reserves totalled $95.4 billion, while gold reserves amounted to $47.13 billion as of December 15. Meanwhile, in November, the bank's overall reserves were at $136.7 billion, up 8.3% monthly.

Foreign currency reserves rose by 11.2% to $82.9 billion, and gold was up by 4.6% to $46.3 billion, the bank added.

Türkiye a potential big story for next year

Türkiye's fiscal policies could pay off with the continued return of foreign investors in 2024, JPMorgan Managing Director Stefan Weiler has told Reuters.

After the strong election victory in May, President Recep Tayyip Erdogan's monetary policies began luring back international capital.

"From our side, we see Türkiye as a potential big story for next year," Weiler, the head of JPMorgan's Central & Eastern Europe, Middle East and Africa(CEEMEA) debt capital markets, told Reuters.

The central bank under Hafize Gaye Erkan, who was appointed as governor in June, began tightening interest rates straight away.

New fiscal era for Türkiye

Following Mehmet Simsek's appointment as the Minister of Treasury and Finance, significant transformations have unfolded in Türkiye's economic landscape. Simsek emphasised transparency, consistency, and predictability as main principles of the Turkish economic policy.

Since the May elections, structural reforms to bolster the central bank's fight against inflation have taken centre stage in the government's agenda.

Simsek identified lowering inflation, fiscal discipline, and reforms as the key pillars of Türkiye's medium-term economy programme (MTP), spanning 2024-2026.