Turkey’s Central Bank Raises Rates Amid Market Turmoil Following İmamoğlu’s Arrest

Turkey’s central bank raised its overnight lending rate from 44% to 46% in an unscheduled meeting late Thursday, aiming to tighten liquidity and restore market confidence following the arrest of İstanbul Mayor Ekrem İmamoğlu.

Market Reaction Remains Negative

Despite the intervention, Turkish markets continued to tumble:

• The İstanbul stock exchange index fell 9% on March 19 and shed another 7% in early Friday trading.

• Turkish lira dipped 4% and traded above TL38 per US dollar, though still above Wednesday’s TL42 low.

The central bank cited concerns about financial instability and potential risks to inflation control, warning that further tightening could follow if needed.

Political Uncertainty Overshadows Economic Moves

The arrest of İmamoğlu, President Erdogan’s key rival, on corruption and terrorism-related charges, has heightened market concerns. Economist Mustafa Sönmez noted that the central bank’s rate hike was an attempt to restore investor trust, but political uncertainty remains the primary issue.

With inflation having declined from 66% in July to 39% in February, the central bank had been cutting interest rates, but further reductions may now be on hold.

Analyst Outlook: Confidence Unlikely to Return Soon

Markets fear that the government could replace İmamoğlu with a state-appointed trustee, further eroding investor confidence. Sönmez warned that economic measures alone would not stabilize markets:

“The problem is not economic but political. The expectation of a trustee being appointed does not help to rebuild trust.”