ANKARA, Turkey (AP) — Turkey’s Central Bank raised its benchmark interest rate by 2 percentage points on Thursday, its first hike in two years to fight inflation and support its falling currency.
In a surprise move that helped boost the Turkish currency, the Monetary Policy Committee said it had decided to increase the policy rate from 8.25% to 10.25% “to restore the disinflation process and support price stability.”
The Turkish lira has been plummeting to record lows, dipping to 7.7 against the dollar this week, as the coronavirus pandemic continues to batter the economy. The lira has lost some 20% of its value this year.
The Central Bank had long resisted pressure to raise the key interest rate due to pressure from Turkish President Recep Tayyip Erdogan to keep rates low. Lower interest rates tend to weaken a currency but boost economic growth and inflation.
The Central Bank had gradually reduced the benchmark rate to 8.25% from as high 24% and had since kept the rates unchanged.
On Thursday, the lira was about 1 % higher, trading at 7.6 against the dollar.