The Turkish central bank decided to increase the key interest rate by 7.5%. With the interest rate now stands at 25%, “analysts are surprised, as they only expected an increase of up to 20%,” observes the financial review Handelsblatt.

However, according to the analysts, “confidence in the will of the Turkish central bank becomes vital.” As long as markets do not see a steady path from the central bank, the Turkish lira will not be able to recover. And the existing lack of confidence in Turkey’s interest rate policy is due to the unorthodox and politically driven measures received by the central bank in recent years.”

As the Frankfurter Allgemeine Zeitung points out, “the Turkish example is instructive, because it shows the consequences of the underestimation of inflation and the wrong fight against it. President Erdogan has long advocated tackling inflation by cutting key interest rates […] But what has been happening lately in Turkey probably confirms the perception that prevails today, according to which […] the fall in key interest rates fuels inflation, as it stimulates demand through favorable loan financing conditions.