Turkey’s Erdogan set for economic U-turn and steep interest rate hike

Turkey is preparing to reverse President Erdogan’s unorthodox economic policies to combat high inflation.  Interest rates, currently at 8.5%, are expected to increase significantly, less than a month after Erdogan was re-elected. 

A cost of living crisis has swept the country due to an inflation rate of nearly 40%. 

Erdogan has been reluctant to raise interest rates, but the situation demands a change. The extent of the rate hike is uncertain, with economists divided on the severity. Some suggest an 11.5-point increase to 20%, while others predict rates could reach 40%. While the rise is expected to be steep, it may happen gradually.

Not only has inflation remained high, but central bank reserves have dropped significantly, to critically low levels,  after it spent billions of dollars trying to prop up the lira.