LONDON — Turkey's central bank increased its key interest rate Thursday for the third time in under two months to fight inflation and support the currency, suggesting President Recep Tayyip Erdogan is easing his grip on the central bank.
Turkey's inflation rate has surged recently, to 12.15 percent in the year to May, as the currency weakens.
In justifying its hike to the main interest rate from 16.5 percent to 17.75 percent, the Turkish Central Bank said that "elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior." Rate hikes bring can down inflation but can also weaken growth.
The move came despite Erdogan's strong pressure on the central bank to keep rates low. Though the central bank is in theory independent of the government, Erdogan has exerted pressure on the bank not to raise rates and potentially stir unrest as he prepares for early presidential and parliamentary elections later this month.
Analysts say Erdogan, who has been in office since 2003 as prime minister and president and is vying for a new five-year term, called the elections more than a year earlier than scheduled as he saw that economic and financial trouble was brewing.
Experts are now trying to gauge why Erdogan has changed his stance. Previously, Erdogan clashed with the central bank and denied problems in the economy. He blamed economic woes on an alleged international conspiracy plotting to undermine Turkey.
Claus Vistesen, an analyst at Pantheon Macroeconomics, says that "two weeks ago, the impression was that Erdogan would step in. Politicians don't want to slow the economy because of upcoming elections."
Erdogan has won successive elections on the strength of a vibrant economy in the past 15 years, and his move to ease pressure on the central bank suggests he is genuinely concerned about the economy and the currency.
"It's relieving to see the central bank erring on the side of caution," says Inan Demir, an economist at Nomura in London. Demir thinks the recent moves should support the currency, the lira, going into the elections. One the elections are over, however, "the lira might once more become dependent on the government".