Central Bank of Türkiye Delivers Surprise Rate Hike

In a move that stunned markets, the Central Bank of the Republic of Türkiye (CBRT) raised its benchmark interest rate by 350 basis points to 46% in April 2025—defying expectations of a hold at 42.5%. The decision came as political tensions and a plunging lira forced the bank into action, with over $50 billion in FX reserves sold to stabilize the currency.

The rate hike, viewed as an emergency response to mounting fragility, followed the March 19 arrest of Istanbul Mayor Ekrem İmamoğlu, triggering investor anxiety and capital flight. Economists widely expected rates to remain unchanged.

Emergency Hike Follows FX Reserve Erosion

The CBRT had previously cut its policy rate by 250 basis points in March. However, following the mayor’s arrest, dollar demand surged, compelling the central bank to burn through nearly all the $50B it had accumulated over two years.

This aggressive rate hike was interpreted as a “forced response” to political shockwaves that shook financial stability.

Other Monetary Tightening Measures

In addition to the benchmark hike:

• Overnight lending rate was increased from 46% to 49%

• Overnight borrowing rate rose from 41% to 44.5%

The CBRT emphasized a firm stance, saying:

“The tight monetary policy stance will be maintained until a permanent decline in inflation and price stability is achieved.”

Inflation & Liquidity Pressures

While core goods inflation decreased in March, April data suggest temporary spikes due to market instability. Domestic demand remains elevated, weakening disinflation efforts. The central bank warned that:

• Inflation expectations remain a major risk

• Protective global trade trends and capital flow volatility are being closely monitored

• All monetary tools will be used in a data-driven and transparent manner

Market Expectations Missed the Mark

Before the decision, a majority of economists polled by Anadolu Agency had forecast no change in April. The surprise hike breaks with expectations and may shift forecasts for the rest of 2025.

The median year-end policy rate forecast now stands at 34.5%, suggesting possible cuts later in the year—if political stability returns.