Turkey's central bank raised interest rates by 500 basis points to 50%. Find out the rationale behind this decision and the investment opportunities it offers

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During the last meeting of the Central Bank of Turkey, it was decided to raise interest rates by 500 basis points to 50% per annum. This significant increase in rates was driven by the deteriorating inflation outlook, but also opened up new investment prospects. High yields can attract both local and foreign investors, boosting capital inflows into the country and contributing to the development of its economy. We tell you about the details of the Turkish Central Bank's decision and how to capitalize on this investment opportunity.

What influenced the decision of the Central Bank

In January this year, the Central Bank of Turkey raised its key interest rate to the highest level since 2003, namely 45%. 

The annualized rate of consumer price growth in Turkey rose to 67% in February, exceeding analysts' expectations. Rising prices have made it difficult for families to pay for food, rent and utilities.

The central bank estimates inflation will peak at 70% in May and then gradually slow down. 

Rising reserve rates

On March 21, 2024, the Central Bank of Turkey significantly raised interest rates by 500 basis points to 50%. The regulator attributed the decision to rising inflation and promised to "pursue a tight policy until it moves to a significant and sustained decline."

The decision came as a surprise 10 days before the nationwide local elections and, according to analysts, is a sign that the central bank is not withstanding any policy constraints and is determined to fight rising prices. 

Accordingly, the Turkish lira jumped 1.5% (against the dollar from 32.40 to 31.91), reversing a week's decline, while dollar-denominated bonds continued to rise.

"Tight monetary policy will continue until the inflation trend is steadily declining and inflation expectations are close to the expected range," the Bank said in a statement after the Monetary Policy Committee's monthly meeting.

The best time to invest is now

The Turkish Central Bank's sudden decision to raise deposit interest rates to a record 50% came as a surprise to many investors and economic analysts.

This event was part of a strategy to stimulate and stabilize the country's financial sector, while at the same time creating new opportunities for investors focused on long-term strategies.

Inflation has put pressure on real incomes and the value of money, making investments in traditional instruments such as deposits less attractive. 

As interest rates in the banking sector have risen, the deposit rate has reached levels rarely seen even in the global market.

In fact, with high interest rates on deposits that cannot provide real protection against inflation, Turkish investors and depositors are looking for alternative ways to save and grow their money, thus spurring demand for real estate and raising its price.

In an environment of higher interest rates, investing in real estate can be more attractive than deposits, especially for those looking for inflation protection and the potential for capital growth in the long term. 

Real estate can usually maintain and even increase in value during periods of high inflation. Real estate prices can rise along with or even exceed its level.

The investment can also provide ongoing rental income, which can be particularly useful during periods of volatile financial markets or high currency volatility.

Real estate, especially if it is in a good location, will not only be able to provide stability now, but also security in the long term.

Where to invest in Turkey?

More than 40% of foreign direct investment coming into Turkey is in real estate, making it one of the most promising markets in Europe.