Türkiye’s Central Bank Faces Pressure to Hike Rates
CBRT
Türkiye’s central bank may be forced to pause or reverse its recent interest rate cuts in response to growing financial market volatility and the political fallout from the arrest of Istanbul Mayor Ekrem Imamoglu, analysts warn.
While recent data showed a sharp decline in inflation—from over 75% in May 2024 to 39% by February 2025—a new wave of political instability is shaking investor confidence and threatening macroeconomic progress.
Lira Hit Hard as Markets Respond to Political Turmoil
The arrest of opposition figure Imamoglu on March 23 over allegations of corruption and terror affiliations has triggered widespread protests and unsettled financial markets.
On March 19, the Turkish lira plunged by as much as 14.5% against the U.S. dollar during peak trading hours, eventually settling around a 7% loss. The BIST-100 index, Türkiye’s main stock market gauge, tumbled 16.5% during the week, marking its steepest drop since the 2008 global financial crisis.
To calm volatility, the Capital Markets Board imposed a one-month short-selling ban, while the central bank intervened heavily by injecting an estimated $26 billion in foreign currency reserves to stabilize the lira.
Central Bank Responds with Rate Hike and FX Sales
Reacting to the turmoil, the Central Bank of the Republic of Türkiye (CBRT) raised its overnight lending rate by 200 basis points to 46%, and pledged to continue foreign currency sales to curb exchange rate swings and maintain liquidity.
The bank had previously lowered its key policy rate to 42.5% over three consecutive cuts in December, January, and March, encouraged by the steady disinflation trend. It also reaffirmed its commitment to achieving a 24% year-end inflation target, stating it would “do whatever it takes.”
Experts Say Rate Cuts May Have Come Too Soon
However, economists now suggest the central bank may have to halt or reverse its easing policy in order to protect the lira and restore investor confidence.
“The central bank may need to halt or even reverse its rate cuts to safeguard the currency and prevent inflation from surging again,”
said Istanbul-based economist Mustafa Sonmez.
Sonmez also cautioned against the renewed risk of “dollarization”, as savers begin converting their lira deposits into foreign currency—a trend that has historically strained Türkiye’s economy.
Goldman Sachs Expects Sharp Rate Hike
Goldman Sachs has projected a potential rate hike of up to 350 basis points at the next Monetary Policy Committee (MPC) meeting on April 17, or possibly sooner, noting that decisive action is needed to support the central bank’s credibility.
“The projected rate hike aims to bolster the central bank’s credibility and reinforce investor confidence in Türkiye’s long-term economic outlook,” the bank stated.
Economists Warn Inflation May Rise Again
Arda Tunca, a financial analyst based in Istanbul, said the CBRT is likely to adopt a “wait-and-see” approach at the upcoming MPC meeting, assessing how the political situation unfolds.
“The 24-percent year-end inflation target is overly optimistic,”
Tunca said, predicting 30% inflation by year-end under current conditions.
Former Treasury Undersecretary Mahfi Eğilmez echoed calls for tighter policy:
“I believe the time has come to increase interest rates to counter the impact of financial turbulence on inflation,”
he wrote in a column for Ekonomim, noting that while he had previously supported easing, the economic context has changed.