Türkiye's Central Bank Raised its Key Interest Rate to 40 Percent today

Turkey's central bank raised interest rates by 500 basis points to 40%, much higher than widely expected. The lira was trading at 28.766 per dollar, slightly firmer against the dollar on the news.

The rate hike was twice as high as economists expected, who had previously forecast a 250 basis point hike. The move is seen as a continuation of the bank's efforts to combat high inflation and the lira's depreciation (Turkish currency inflation hit 61% in October).

Turkey's central bank's decision follows a series of rate hikes that are painful for its wobbling economy as the country aims to reverse several years of soaring inflation and a sharp currency depreciation — in large part. The result of the Ankara government’s stubbornly loose monetary policy.

As to the Turkish economy, according to central bank data, certain foreign inflows totaled about $16 billion in the 4 months from June through September. In the same period, foreign investors invested about $5 billion into Turkish stocks and sovereign bonds, while inflows into local bank deposits and loans totaled some $9.5 billion. Foreign direct investments were the weakest link. While real estate sales brought in $930 million, actual direct investments saw an outflow of about $630 million.