Turkey’s central bank surprised markets on Thursday by raising its benchmark interest rate to 46 percent, a move that drew mixed reactions from economists amid ongoing political tensions and a sharp drop in foreign reserves, the Halk TV news website reported on Thursday.
The bank’s Monetary Policy Committee (PPK) lifted the key one-week repo rate by 350 basis points, defying widespread expectations of a hold. The decision follows a month of financial turbulence triggered by the March 19 detention and subsequent arrest of İstanbul’s opposition mayor, Ekrem İmamoğlu, which led to widespread public protests, investor unease and a steep fall in the Turkish lira.
Economists reacted quickly to the unexpected move, with former Treasury Undersecretary Mahfi Eğilmez calling it the right decision.
“The central bank has raised the policy rate to 46 percent, exactly as I recommended,” he wrote on X.
“If not for March 19, the central bank might have cut the rate to 40 percent,” said Uğur Gürses, a prominent economy pundit, adding that İmamoğlu’s arrest cost the central bank $45 billion and pushed rates up by 600 basis points.
Economist Mustafa Sönmez argued that the interest rate decisions “won’t clear the fog of political uncertainty.”
“This is no longer just an interest rate issue. Unless there’s rule of law, there can be no stability,” he added.
British economist Timothy Ash called the move “a difficult but correct decision.”
“I think recent events — domestic politics and the global tariff war — have strengthened the CBRT mandate to do whatever it takes to fight inflation. Reserve loss was just too much, hence the reach out for additional support from rates,” he said.
While Gizem Öztok Altınsaç, the Turkish Industrialists and Businessmen’s Association’s (TÜSİAD) chief economist, called the 350 basis-point increase a “step in the right direction,” Hayri Kozanoğlu, an economics professor, said the hike reflects an acknowledgment of the gravity of the reserve losses.
“This move will further cool the economy, slow growth and make debt repayments harder for households and businesses,” he added.
Pro-government daily targets ministry, central bank
The central bank’s decision drew sharp criticism from Yeni Şafak, a staunchly pro-government newspaper, which on Friday accused both the Treasury and Finance Ministry and the central bank of dealing a blow to the economy.
In a front-page article titled “Another blow from the Treasury and Central Bank,” the paper claimed that the rate hike ignored the financing problems of the real sector and cited limited demand for foreign currency as “an unjustified excuse.” It argued that the central bank, which is supposed to act independently, is under the influence of the Finance Ministry led by Mehmet Şimşek, accusing it moving against expectations from the business world and risking further undermining production and growth.
Yeni Şafak has a history of targeting central bank governors over interest rate hikes. In March 2021, following then-governor Naci Ağbal’s decision to raise the policy rate from 17 to 19 percent, the paper ran a headline reading, “Whose operation are you running?” Ağbal was dismissed days later and replaced by Yeni Şafak columnist and economist Şahap Kavcıoğlu.
Bloomberg economist Selva Baziki had estimated that the central bank’s interventions in the foreign exchange market to support the lira between March 19 and April 10 amounted to roughly $49 billion. Her calculation factored in both a $42.2 billion decline in net reserves and a $6.5 billion boost from rising gold prices and export revenue.
TCMB net rezervleri 19 Mart-10 Nisan arasında $42.2 mlyr eridi.
Halbuki aynı dönemde altın fiyatındaki artış+ihracat gelirlerinden rezervlere $6.5 mlyr katkı oldugunu hesapliyoruz.
Dolayısıyla TCMB’nin lira desteği icin döviz piyasasına müdahalesi $49 mlyra ulaşmıs olabilir. pic.twitter.com/7TsRBA12LF
— Selva Baziki (@SelvaBaziki) April 15, 2025
Citing Baziki’s estimate, British strategist Timothy Ash noted the sharp depletion of reserves and questioned whether a rate hike was the inevitable next step.
Bloomberg’s Baziki calculates that CBRT reserve loss thru intervention since the arrest of Imamoglu has been $49bn including countering tariff related selling. She sees net reserve down to $16.7bn as of April 10. Big drop – next step base rate hike?
— Timothy Ash (@tashecon) April 15, 2025
Annual inflation that soared to 75 percent in May of last year fell to 38.1 percent in March, its lowest level since December 2021, according to official figures released early this month.
Turkish authorities are officially targeting 24 percent by the end of 2025.
