The Central Bank of Turkey on Thursday raised its main key rate by 475 basis points to 15%, responding to expectations of a change in monetary policy after upheavals in the economic team of President Recep Tayyip Erdogan.

This spectacular increase comes after the double replacement in early November of Minister of Finance Berat Albayrak, son-in-law of the president, by Lütfi Elvan, and of the governor of the central bank Murat Uysal, by Naci Agbal. Thursday’s meeting of the central bank’s monetary policy committee, the first since Mr. Agbal’s arrival, was seen as a credibility test for this institution whose independence is questioned by the markets.

The latter had been demanding for several months a significant increase in the central bank’s rates to curb inflation, but the institution had on the contrary lowered them several times, under pressure from Mr. Erdogan. Sign of the satisfaction of economic circles after the announcement of the central bank Thursday, the Turkish lira jumped 2% against the dollar, before stabilizing at around 7.60 against a greenback at 12:00 GMT.

After the changes in his team, Mr. Erdogan promised that “new era“Would open up, committing to improve the rule of law and take the necessary measures to restore the economy, even if it means drinking”bitter potions“. On Thursday, the central bank pledged to implement a “transparent and vigorous monetary tighteningTo fight inflation, which stood in October, year on year, to 11.89%.

Excellent start

The rate hike decided on Thursday by the central bank “seems to be enough to convince investors that a real change in the direction of economic policy in the right direction is underway“, Estimated in a note the firm Capital Economics, which expected an increase of 450 basis points. Mr. Agbal “does the job, it’s a great start to my tenure as head of the Turkish central bank», Said Timothy Ash, analyst at BlueBay Asset Management. “It’s a very fair and logical decision“, he added.

The Turkish lira, which has eroded sharply since 2016, has recovered spectacularly in recent days, reflecting the hope of a return to a more orthodox economic policy after the departure of Mr. Albayrak. Bombarded as Minister of Finance in 2018, the latter failed to convince the business community who criticized him for his lack of experience in extricating Turkey from difficulties: high inflation, high unemployment (13.2% in August) and erosion of the pound which traded at 4.5 against the dollar when he took office.

In this context, the economy, which was once Mr. Erdogan’s strong point, has become the cause of unprecedented electoral setbacks: in a municipal election last year, the opposition swept Istanbul and Ankara.

Erdogan allergy

In recent months, in the face of Mr. Erdogan’s staunch opposition to any rate hike, the central bank had used other tools to quietly raise funding costs and bolster the pound, adding confusion to the opacity. Under the mandates of MM. Albayrak and Uysal, the central bank in particular drew without counting on its foreign currency reserves to keep the pound afloat, without succeeding, thus reducing its capacity to respond to possible shocks.

In its statement Thursday, the central bank promised more clarity, saying that the key rate would return to its “main instrument and only indicator of monetary policy», A sign of orthodoxy for the markets. The question that many investors are now asking is whether the central bank will manage to permanently free itself from Mr. Erdogan’s allergy to rising interest rates, which he describes as “father and mother of all evils“.

In particular, the president argues that inflation is caused by high interest rates, while conventional economic theories say the opposite. Moreover, Mr. Erdogan was once again angry Wednesday against the high rates, believing that they “crush investors“.