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he Central Bank of the Republic of Turkey has raised the interest rate by 7.5%, up to 25%. If you are wondering whether it’s a big or small move, we’ve got the answer – it’s colossal. Even the Turkish lira managed a slight uptick against the US dollar; it’s akin to witnessing a snowfall on a summer day in Istanbul. Let’s find out how significant this news is and what might lie ahead for the lira.
Following the elections, the new governor of the local central bank, Hafize Gaye Erkan, adopted more familiar strategies to combat inflation. The latest interest rate hike is already the third one under her management. A journey from 8.5% to 15%, then up to 17.5%, and now a whopping 25%. Let’s take a look at the chart reflecting the USDTRY pair's performance this summer. As you see, previous key rate hikes didn’t really prop up the lira, but the most recent one managed to push it to the 25.5 level.
The other meaningful moment is the Turkish central bank's decision to do away with a scheme that shielded deposits from the lira's depreciation. Instead, there will be conventional lira deposits. In theory, it might become an extra incentive for the local economy.
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