Turkey monetary-policy pivot after the 2023 election

Interest-rate normalization and the inflation trade-off after Erdoğan’s reelection

Turkey's monetary-policy reversal after the May 2023 elections marked a break with years in which President Recep Tayyip Erdoğan had pressed for low interest rates despite intense price inflation. The newly appointed economic team and central bank moved toward conventional tightening. This shift aimed to stabilize the lira, rebuild policy credibility and reduce inflation, but households continued facing high prices and the immediate cost of expensive credit.

• 2021: Turkey's central bank began cutting interest rates amid accelerating inflation, reflecting the president's stated opposition to high borrowing costs; the lira depreciated sharply and household savings lost purchasing power.
• 2022: Annual consumer-price inflation reached extraordinary levels, intensifying pressure on wages, pensioners and businesses dependent on imported inputs; the gap between official policy rates and market inflation called monetary credibility into question.
• 28 May 2023: Erdoğan won the presidential runoff, giving him a renewed mandate to choose the economic team; His post-election appointments were closely watched for signs of a shift in monetary-policy tightening.
• 22 June 2023: The central bank raised its benchmark rate to 15 percent, its first major tightening move after the earlier easing cycle; the increase signaled a policy reversal but was initially much smaller than the inflation rate.
• 2023: Further rate increases followed as policymakers sought to restrain demand, support lira savings and cool prices; the costs included higher financing expenses for businesses and families with variable-rate borrowing.
• March 2024: The benchmark rate reached 50 percent after another tightening step, indicating the scale of the central bank's response to inflation expectations and currency pressure.
• 25 April 2024: The Monetary Policy Committee maintained a restrictive stance and emphasized vigilance about inflation; Policymakers argued that sustained tightening was necessary to achieve disinflation.
• 27 June 2024: The central bank again maintained its policy rate, citing persistence in underlying inflation dynamics; it signaled that loosening would depend on evidence of durable improvement rather than a political timetable.

Criticism focused on the social distribution of the adjustment. Inflation had already eroded household purchasing power, but tighter policy increased borrowing and investment costs before consumers experienced full relief. Export-oriented businesses also faced shifting currency and financing conditions, and households disagreed over whether headline disinflation matched grocery and housing expenses.

Supporters argued that conventional policy reduced the risk of a deeper currency and banking-system crisis. An exchange-rate collapse could have damaged savers, importers and credit markets still more severely. The causal relationship to inflationary pressure is therefore a contest between near-term economic pain and the danger of postponing stabilization. Erdoğan's political approval of a rate reversal was significant, yet lasting confidence depended on the central bank's ability to continue its policy when inflation and economic growth moved in politically uncomfortable directions.