Contextualizing Turkey’s Surprise Interest Rate Hike

On Sept. 24, the Central Bank of the Republic of Turkey (CBRT) announced a surprise interest rate hike in a preemptive move that seeks to prevent the country’s depreciating currency from unfolding into a larger banking or balance of payments and external debt crisis. The steadily declining value of Turkey’s national currency, the lira, is largely the result of economic imbalances -- partially precipitated by a highly negative real interest rate, a credit-fueled construction boom, and large external financing needs, as well as the CBRT’s lack of credibility and near exhaustion of Ankara’s foreign currency reserves....