Assurances regarding the proactive nature of Turkey’s monetary policy had been given by the country’s central bank governor, who stated that the risks of re-dollarisation had been effectively contained. This claim was made amid the recent market volatility that had been triggered by the arrest of Istanbul’s mayor. The remarks were delivered in a formal presentation to international stakeholders in Washington, where Turkey’s top financial policymakers had gathered for meetings with global economic institutions.
It had been conveyed by Central Bank Governor Fatih Karahan that monetary transmission—the process through which policy decisions influence inflation and the broader economy—was considered to have improved markedly over the past year. He further indicated that the path toward disinflation was still being followed, although he warned that risks remained present along this trajectory. Additionally, it was noted that the outlook for economic growth was viewed as highly uncertain, primarily due to global trade tensions and broader macroeconomic volatility.
The presentation, which had been released publicly by the central bank, emphasized that a decisive tightening of policy had been instrumental in preventing a shift back toward foreign currency holdings by Turkish residents, a phenomenon known as re-dollarisation. It was highlighted that retail demand for foreign exchange had remained relatively limited, a sign that confidence in the Turkish lira was being cautiously maintained despite recent political unrest.
Both Governor Karahan and Finance Minister Mehmet Simsek had traveled to Washington for the annual meetings of the International Monetary Fund and the World Bank. During their visit, they held discussions with several international counterparts, including U.S. Treasury Secretary Scott Bessent. These meetings were seen as part of broader efforts to reassure international investors and maintain financial stability amid domestic political turbulence.
A significant policy response had been enacted just days before the Washington meetings. Turkey’s central bank had raised its main interest rate from 42.5% to 46%, while the overnight lending rate had been lifted to 49%. These increases had been implemented in response to a sharp devaluation of the Turkish lira and a sell-off of other domestic assets, events that had unfolded following the arrest of Istanbul Mayor Ekrem Imamoglu on March 19.
It had been reported that the Turkish lira depreciated by as much as 12% in the immediate aftermath of Imamoglu’s detention, reaching an all-time low of 42 lira to the U.S. dollar. However, much of the loss was later recovered, largely due to interventions by the central bank, including foreign exchange sales. These measures had been undertaken to stabilize the currency and to prevent a broader financial crisis.
In the published remarks, Governor Karahan reiterated the commitment to maintaining a tight monetary policy stance until inflation could be brought down in a sustained manner. He stressed that achieving price stability remained the primary objective of the central bank and that recent interest rate hikes were a necessary part of this strategy. The central bank’s decisiveness was credited with reinforcing the disinflation process and restoring a measure of credibility to Turkey’s monetary framework.
Concerns had been expressed by global investors following the arrest of Mayor Imamoglu, who was a prominent opposition figure. His detention, which led to his jailing pending trial on charges widely viewed as politically motivated, was seen as an indication of democratic backsliding. Critics of the move had argued that such actions undermined the rule of law and posed risks to investor confidence in Turkey as a reliable and predictable emerging market.
Over the past 18 months, Turkey had attracted substantial foreign inflows, largely due to the central bank’s efforts to restore monetary orthodoxy after a prolonged period of unorthodox policies and excessive intervention. However, the recent political events and the subsequent market response had raised questions about the sustainability of these improvements, and whether domestic political developments could again override sound economic governance.
In conclusion, while Turkey’s central bank had positioned itself as proactively responding to both internal and external shocks, the broader context remained fragile. Confidence in Turkey’s financial system was being actively maintained through tight monetary policy and public reassurances. Nonetheless, underlying concerns about political stability, institutional independence, and legal transparency were likely to persist and to influence the outlook for the Turkish economy in the months ahead.
