The news had a positive effect on lira as it regained a part of its losses against the US dollar. Although central banks don’t usually announce the rate hikes beforehand, the representatives hinted at it by saying: “[The] monetary stance will be adjusted at the September monetary policy committee meeting in view of the latest developments.” This means that this Thursday when the rate-setting committee meets to finalize a decision on the interest rate change, we can expect a rate hike to be announced.
One of the alleged reasons why Turkey’s central bank kept the interest rate unchanged was the belief of the top officials, including the President of the country Recep Tayyip Erdogan, that high interest rates don’t help reign in the inflation, but on the opposite, aid the increase of the inflation rate. Many belive that this idea, which goes against the teaching of most modern economic theories, was one of the reasons why the rates remained unchanged.