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Too hard on the brakes? Turkey increases policy rate to 25%

  • Writer: Alp
    Alp
  • Aug 24, 2023
  • 1 min read

Updated: Nov 26, 2023

The Turkish Central Bank increased the policy rate from 17.5% to 25% today, which was above the consensus expectation of 20%, which was already priced into markets. This rate hike increased the value of the lira against the dollar, and the BIST edged down by 1.4% in TRY but was up in terms of USD.


I agree with the decision to pivot to a rational economic policy, but is the Central Bank breaking too hard? We have seen central banks around the world walk on a tightrope for the last two years, trying to softly land their economies, I think this rate hike might have been too fast, too soon, and risks plunging the country into a recession, or increasing unemployment by a lot. But it also signals the importance of decreasing inflation to the central bank which will increase investor confidence.


The market's reaction, of rising in US Dollar terms, instead of falling, shows that investors in Turkish stocks value price stability and correct monetary policy over a low cost of capital.


 
 
 

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