Turkish Central Bank raises rates in shock move

President Erdogan

In a dramatic move, Turkey’s central bank has defied President Recep Tayyip Erodgan and raised a key interest rate by almost seven percent.

In a show of independence by the national institution, the bank raised the rate on short-term loans to private banks from 17.75 percent to 24 percent. The move stymies Erdogan’s goal of credit-fuelled growth, but it also stabilises the lira, reassuring international investors looking to invest in Turkey and staving off concerns about financial pressures spreading outwards from Ankara.

Turkey’s lira, which has lost more than 40 percent of its value against the dollar this year, rallied on news of the hike.

Berat Albayrak

Analysts are speculating that Berat Albayrak, the country’s finance minister and Erdogan’s son in law, convinced the president to give the central bank leeway, and take the concerns of international financiers into account. The show of independence from the central bank is expected to bolster investor confidences.

Erdogan is adamant the Turkish economy will grow, despite problems with the lira. The president continues to show opposition to the interest hike. He has always held that high interest rates spur inflation, and has in the past told audiences that he hoped the banks would maintain their rates, and that the country’s high inflation was due to “the wrong steps by the central bank.”

On Thursday, the government announced that within 30 days, developers must conduct all real estate transactions in Turkish lira, as well as rentals.

Property Turkey director Cameron Deggin said the central bank’s measures provide a small window for property investors seeking to make gains. 

“For the next week we’ll see the lira edge up against the US dollar. What we’ll see then, is a credit squeeze, thanks to low lending and debt defaults. This will see the lira fall once again.”

This period, towards the end of the month, will be prime time for anyone looking to buy property in Turkey, he said.

“The lira will stay low for a brief period but will stabilise against the dollar and confidence will return, pushing the currency higher.”

As for the necessity for transactions to be conducted in lira, Deggin said the move wasn’t a bad thing, and added another opportunity for buyers to take advantage over the next four weeks of situations where developers or individual sellers are setting prices.

“It could be a problem for expats selling property in Turkey and going back to their home countries, but for buyers, conditions are largely the same.”

And at the end of the day, long-term growth will prevail, he said. “Yes, we have this short term volatility that provides pockets of opportunity for investors. But in the long run, the overall trend is upwards, which is positive for anyone who has already made a property investment in Turkey, or is planning to jump on board in the future.”


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