Central Bank of Turkey raises key interest rate to 46%, reversing easing cycle amid tariff worries

The monetary authority of Turkey has unexpectedly hiked its key policy rate while warning of rising monthly inflation against the backdrop of global tensions over new tariffs.

The surprise decision reverses an easing cycle that began at the end of 2024, after more than a year of tightening aimed at bringing down heightened prices, Turkish media highlighted.

Turkish central bank hikes policy rate by 350 bps amid rising inflation

The Central Bank of the Republic of Turkey (CBRT) surprised some analysts by raising its key interest rate by 350 basis points, the Turkish press reported. On Thursday, the benchmark one-week repo auction rate went up from 42.5% to 46%.

The monetary policy regulator also increased its overnight lending rate to 49% from the 46% level announced in an unscheduled policy move last month and bumped the overnight borrowing rate from 41% to 44.5%.

The latest decision reverses the easing cycle that started in December, the Daily Sabah pointed out in an article. During its last three meetings, the CBRT cut the benchmark rate from 47.5% to 42.5%, the Anadolu Agency recalled in its report.

Prior to that, between May 2023 and March 2024, the bank had raised the rate from 8.5% to 50% and kept it there until its December meeting. The aggressive tightening was credited for bringing down annual inflation from last May’s 75% to a little over 38% in March, this year.

But Turks are likely to deal with higher prices again this month, with the central bank stating that the “monthly core goods inflation is expected to rise slightly in April due to recent developments in financial markets.”

“Inflation expectations and pricing behavior continue to pose risks to the disinflation process,” the CBRT commented, adding that domestic demand is likely to exceed projections, despite a certain loss of momentum during the first quarter of 2025.

The financial authority intends to maintain a tight monetary policy until it achieves price stability through sustained inflation decline. It stressed that “monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen.”

MPC Decision of April 17, 2025: https://t.co/rphgZFRBvf pic.twitter.com/Y8iumCGtYp

— CentralBankofTürkiye (@CentralBank_TR) April 17, 2025

Central Bank of Turkey worried over tariff impact on efforts to tame inflation

While announcing the higher interest rates, Turkey’s central bank also emphasized it’s watching for potential impacts of “rising protectionism,” without pointing a finger directly at U.S. President Donald Trump’s new tariffs or the countermeasures prepared by other leaders.

“Potential effects of the rising protectionism in global trade on the disinflation process through global economic activity, commodity prices and capital flows are closely monitored,” the bank assured.

In early April, President Trump announced a 10% “reciprocal tariff” on imports from Turkey, which also charges 10% on U.S. goods. For comparison, the United States wants to levy 20% on EU imports and hit China with 145%.

The interest rate hike comes amidst a raging trade war between the U.S. and China, heightened tensions between Washington and Brussels over tariffs, and political turmoil in Turkey that sparked protests over last month’s arrest of Istanbul Mayor Ekrem Imamoglu.

The central bank’s move surprised economists, with a majority of respondents in a Reuters poll carried out ahead of the decision expecting rates to remain unchanged. The CBRT’s announcement gave a slight boost to the Turkish lira (TRY), which had hit a record low of 42 against the U.S. dollar in March. It currently trades at a little over 38 liras for $1 (USD).

Cryptopolitan Academy: Coming Soon - A New Way to Earn Passive Income with DeFi in 2025. Learn More