In February, Fatih Karahan took over as chairman of Turkey’s central bank after his predecessor, Hafize Gaye Erkan, resigned amid allegations of her father’s involvement in central bank decisions. Under Erkan’s leadership, the central bank had initiated interest rate hikes to address inflation, a departure from the previous approach of avoiding rate hikes. Turkish President Recep Tayyip Erdogan, who had fired central bank chairmen for advocating rate hikes in the past, had resisted the standard economic practice of raising interest rates to combat inflation.
However, despite previous rate hikes, inflation in Turkey remains stubbornly high. In February, consumer prices rose by 67 percent compared to the previous year. The new central bank chairman, Fatih Karahan, had previously hinted at an end to interest rate hikes. However, the decision to raise rates again likely stemmed from the combination of high inflation and the sharp depreciation of the Turkish lira ahead of local elections in March.
The central bank surprised economists by raising interest rates by 5 percentage points to combat high inflation in the country. The new rate is now at 50 percent. Just a month ago, the central bank had paused interest rate hikes after eight consecutive increases. The move was seen as an attempt to stabilize the economy and address inflationary pressures.
Karahan has said that he believes that raising interest rates is necessary to combat high inflation and restore stability to Turkey’s economy. He has also emphasized that he will continue to take all necessary measures to ensure that Turkey experiences sustainable growth and development.
Despite some concerns about rising interest rates and their potential impact on economic growth, many experts believe that the move was necessary given Turkey’s current economic situation. They hope that with continued efforts by both Karahan and other government officials to stabilize the economy and address inflationary pressures, Turkey can return to its former status as a leading global powerhouse in no time.
In conclusion, Fatih Karahan’s decision to raise interest rates by 5 percentage points reflects ongoing efforts by both him and other government officials to stabilize Turkey’s economy and address inflationary pressures. While some may view this move as risky or potentially damaging to economic growth, others see it as a necessary step towards restoring stability and promoting sustainable development in Turkey. Only time will tell whether this strategy will ultimately be successful or not.
