In a move that caught markets off guard, Turkey’s central bank raised its benchmark interest rate from 42.5% to 46% on Thursday, effectively ending the easing cycle it began in December. The hike comes amid mounting political tension and economic strain, including severe inflation and instability in the lira.

The central bank’s Monetary Policy Committee emphasized that a firm monetary stance is helping to cool domestic demand, support the Turkish lira, and gradually anchor inflation expectations. Annual inflation remains stubbornly high, reaching 38.1% in March, prompting the need for stronger monetary intervention.

This surprise decision follows a turbulent month for Turkey, marked by the March arrest of Istanbul’s opposition mayor Ekrem Imamoglu. The political fallout sparked mass protests and capital flight, triggering a temporary crash of the lira to over 40 per U.S. dollar. In response, the central bank burned through $25 billion in just three days to stabilize the currency.

In a rapid reaction on March 20, the bank had already delivered an emergency 200-basis-point rate hike, pushing the overnight lending rate to 46%. Thursday’s move now formalizes that emergency tightening and signals a shift in strategy: inflation control over growth stimulation.

Economists say the bank’s decision reflects increased concern about global trade protectionism and its effects on inflation, commodity prices, and capital flows. The central bank pledged to keep its tight stance until a consistent drop in inflation is achieved.

While analysts expect inflation to ease gradually in the coming months, the latest rate hike has clearly drawn a line under Turkey’s recent easing phase. Most now anticipate the one-week repo rate will finish the year at 40%, higher than previously expected. The message is clear — economic stability now takes priority over stimulus.