ISTANBUL—Turkey’s central bank raised its interest rates—a surprising step amid recurrent calls by President Recep Tayyip Erdoğan to keep them low—in an attempt to counter the rapid erosion of the Turkish lira.
The bank increased its main rate to 10.25% from 8.25% Thursday, citing concerns over high inflation, and saying measures it took last month to tighten money supply should be reinforced.
The rate increase eased some of the selling pressure that drove the Turkish lira to an all-time low earlier Thursday. After the announcement, the currency strengthened, with $1 buying 7.62 lira, compared with an all-time low of 7.7183 lira before.
Analysts said the rate increase marked a step in the right direction, but warned that the central bank’s average policy rate remained negative when adjusted for inflation, making holding the lira unattractive for foreign investors and residents alike.
The central bank’s average lending rate stood at 10.65% as of Wednesday, below annual inflation, which came in at 11.8% last month.