Turkey hikes main interest rate to 17 pct, promises further monetary tightening

Turkey’s central bank sharply hiked its key interest rate by 200 basis points to 17 percent, in a larger move than expected as it aims to cool inflation and dollarization, and bolster the credibility of its new Governor Naci Agbal.

The bank lifted its one-week repo rate from 15 percent and repeated its intention to maintain tight policy decisively to achieve permanent fall in double-digit price rises.

The tightening follows a hefty hike of 475 points last month, which was Agbal’s first move after taking the reins in a surprise leadership overhaul in which Turkish President Tayyip Erdogan pledged a new market-friendly economic era.

Economists predicted a 150-point rise in a Reuters poll and called it a test of the bank’s independence in the face of Erdogan’s past criticism of high rates, especially with coronavirus fallout set the crimp the economy this winter.

But inflation jumped to 14 percent in November, well above a targetaround 5 percent, and Turks continue to buy foreign currencies at record levels, keeping Turkey’s lira near record lows and putting pressure on the bank to tighten again.

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