The central bank of Turkey raised its key interest rate to 15% in a major policy shift, abandoning for the first time in two years unconventional economic measures promoted by Turkish President Recep Tayyip Erdogan.

The bank increased its principal interest rate from 8.5% to 15% during the first monetary policy meeting since Erdogan’s re-election in May.

The decision aims “monetary tightening in order to chart the course of deflation as quickly as possible“, the central bank said in a statement.

“Monetary tightening will be tightened as necessary, at the right time and gradually until a significant improvement in the inflation outlook is achieved“, he added, implying that interest rate hikes may continue in the coming months.

The lira fell to a new record low of 24.2 against the dollar after Turkey’s central bank decided to raise its key interest rate by 650 basis points as markets expected a bigger hike.

Erdogan said last week that his belief in the need to cut interest rates remains “unchanged”. Nevertheless, he hinted that he had given his consent to the increase in interest rates.

Analysts believe that a strong increase in the key interest rate could help the recovery of the Turkish economy.

Contrary to what classical economic theories advocate, Erdogan, who was re-elected at the end of May for a third term, believes that high interest rates favor inflation.

In the past two years, he forced Turkey’s central bank to cut interest rates under a “new economic model” that favored GDP growth and job creation.

But that choice contributed to a spike in inflation — which fell below the 40% mark for the first time in sixteen months, according to official figures — as well as a slump in the Turkish lira, which lost more than 80% of its value. against the dollar over five years.

Independent economists dispute the official rate of inflation and estimate that it exceeds 100%.

They also criticize Turkey’s central bank for spending nearly $30 billion to prop up the national currency between Jan. 1 and the presidential election, pushing foreign reserves into negative territory for the first time since 2002.

In early June, the Turkish lira fell more than 7% and hit new record lows against the dollar and the euro. One dollar was exchanged yesterday, Wednesday, for 23.6 Turkish liras.