The Return to Orthodox Policy

How Turkey reversed course after the May 2023 election, raising interest rates sharply to fight inflation, and the early results of the U-turn.

After the May 2023 election, Turkey changed course.

New team

Mehmet Şimşek, a former Merrill Lynch economist, became finance minister.
The central bank, led first by Hafize Gaye Erkan and then Fatih Karahan, raised rates.

Rate hikes

The policy rate rose from 8.5 percent in June 2023 to 50 percent by March 2024.

Results

Inflation fell from around 75 percent in May 2024 to around 35 to 40 percent by mid-2025.
Foreign investors returned partially.
Reserves were rebuilt.
The central bank began cutting rates cautiously in late 2024.

Costs

Slower growth.
Pain for borrowers and businesses.

Setback

Political turmoil in March 2025, after the arrest of Istanbul’s mayor, triggered a lira sell-off and a temporary rate hike, showing how credibility remains fragile.

Lesson

Restoring credibility after policy mistakes takes time and costly tightening.

The 50 percent rate

A Turkish business that borrowed cheaply in 2021 faces 50 percent interest rates in 2024, cutting investment, while inflation slowly falls.

Thinking policy mistakes are quickly reversed

Restoring credibility requires painful, sustained tightening.

Key takeaways

Turkey returned to orthodox policy after May 2023.
Rates rose from 8.5 percent to 50 percent.
Inflation fell from about 75 to around 35 to 40 percent by mid-2025.
Credibility remains fragile.