In September, the Turkish central bank increased the key interest rate by 500 basis points to 30%, a fourth straight hike aimed at tackling high inflation as part of a broader policy U-turn.
In August, the regulator refused to inject more foreign-exchange reserves to buoy the domestic currency and manage the exchange rate. The decision to ease regulatory requirements in the banking industry then sent the lira plummeting.
Turkey has spent some $200 billion to support the national currency in the 18 months through August, depleting reserves as it kept interest rates artificially low.
Last month, the annual inflation rate increased for the third consecutive month to 61.5% in September 2023 from 58.9% in August. The highest inflation jump since December 2022 has been primarily attributed to increases in tax rates and the devaluation of the lira.
Previously, the country’s government supported a policy of low interest rates despite high inflation. This caused a currency crisis in late 2021 and pushed inflation above 85% last year. Annual consumer price inflation is expected to rise to around 60% by year end.