ISTANBUL: Turkiye’s central bank raised its key interest rate by a lofty 500 basis points to 30% on Thursday as expected, marking a second month of aggressive tightening, after President Tayyip Erdogan set aside his long opposition to tight policy.

The bank’s policy committee reiterated that it is ready to raise rates further as needed to rein in inflation that leapt to nearly 59% in August and is expected to rise into next year. It has hiked rates by 2,150 basis points since June.

“Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved,” the bank said after its policy-setting meeting.

In a Reuters poll, economists forecast a 500 basis-point hike with forecasts ranging from 27.5% to 31%.

The lira weakened to 27.0845 against the dollar, from 26.96 beforehand.

Following his May re-election, Erdogan appointed former Wall Street banker Hafize Gaye Erkan to lead the central bank in June as authorities grappled with an economy strained by depleted FX reserves and soaring inflation expectations.

Previously Erdogan had supported a low interest rate policy despite high inflation, which triggered a currency crisis in late 2021 and pushed inflation above 85% last year. Partly due to lira deprecation, annual consumer price inflation is seen rising to around 60% by year end.

Last month the bank shocked with a 750-point hike that was seen to signal a new determination to battle inflation. Rates rose three times more than expected and sparked the biggest single-day lira rally since 2021.

Two weeks later, Erdogan - who since 2018 has repeatedly described himself as an “enemy” of “evil” interest rates - instead said tight monetary policy will help bring down inflation.

The lira has weakened nearly 70% in two years, primarily due to Erdogan’s long-standing opposition to high rates and influence over the central bank. It dropped again this summer as the new economic team loosened the state’s grip on forex markets and began shedding unorthodox policies and regulations.

The central bank has also selectively tightened credit and began rolling back a costly scheme, adopted to halt the late-2021 currency crash, that protects lira deposits against forex depreciation.

Based on last week’s Reuters poll, economists expect further monetary tightening to lift the policy rate to 35% by year-end, with forecasts ranging between 30% and 40%.

Earlier this month, the government lifted its year-end inflation forecast to 65% and trimmed economic growth forecasts. Erdogan said at the time: “With the support of tight monetary policy, we will bring down inflation to single digits again.”