Turkey’s central bank to release interest rate decision

The Turkish Central Bank will announce an interest rate decision today, with an interest rate hike to 15% highly likely.

President Recep Tayyip Erdogan appointed Naci Agbal as the bank’s governor earlier this month, likely a consequence of the lira’s record fall in value. Agbal, a former finance minister, is likely to engage in more conventional monetary policy than his predecessors, hence the expected interest rate hike. It remains to be seen whether Erdogan, who sees high interest rates as an obstacle to economic growth, will accept an increase or if he will proceed to fire Agbal, risking further destabilisation in the lira’s value. The massive recent fall in the lira’s value could lead to a balance of payment crisis, with Turkey unable to pay its foreign debt.

As Turkey faces possible sanctions from the EU regarding oil exploration in contested waters of the Mediterranean as well as probable increased scrutiny of the country’s human rights record after the election of US President Joe Biden, a further fall in the lira’s value is likely. This will likely require further rate hikes, but Erdogan has shown himself to be willing to meddle with the central bank’s independence to stop interest rate hikes, which are likely to lead to further destabilisation.