Turkey’s central bank has raised its overnight lending rate by two percentage points to 46% following an unscheduled meeting on Thursday. The decision comes as the Turkish lira faces significant volatility amid rising political tensions and economic uncertainty.
Despite the hike in the overnight lending rate, the central bank opted to keep its policy rate unchanged at 42.5% and its overnight borrowing rate at 41%. The rate adjustment is part of a broader effort to stabilize the lira, which recently hit a record low against the U.S. dollar. Following the announcement, the currency saw a slight rebound in value.
The decision to tighten liquidity comes after a week of financial market turbulence, exacerbated by the recent detention of Istanbul Mayor Ekrem İmamoğlu, a key opposition figure and political rival to President Recep Tayyip Erdoğan. The move has fueled concerns over political stability in Turkey, further pressuring the financial markets.
In addition to the rate hike, the central bank introduced measures to manage Turkish lira and foreign exchange liquidity, signaling its commitment to limiting volatility and maintaining orderly market conditions. “We stand ready to take further measures as needed to ensure financial stability,” the central bank said in a statement following the meeting.
On Wednesday Turkish banks intervened in currency markets, selling an estimated $8 billion to $9 billion in foreign currency reserves, according to a central bank official.
Turkish bank stocks fell by as much as 9 percent Thursday amid uncertainty over future monetary policy decisions.
Turkey’s economic landscape remains fragile, with inflation persistently high and external financing needs putting pressure on the country’s reserves. Analysts suggest that the central bank may have to implement further rate hikes or policy adjustments in the coming months if market instability continues.
