Turkey central bank stuns market with 500-point rate hike to 50%

Turkey's central bank unexpectedly raised interest rates by 500 basis points to 50% on Thursday, citing a deteriorating inflation outlook and pledged to tighten further if significant and persistent deterioration in inflation is foreseen.

The hawkish surprise came 10 days before nationwide local elections and was seen by analysts as a signal that the central bank was independent from any political constraints and determined to tackle price rises.

In response the lira currency rallied as much as 1.5% to 31.91 against the dollar, reversing weeks of steady declines, and Turkey's dollar bonds extended a rally.

The bank has now raised its key one-week repo rate by 4,150 basis points from 8.5% since last June, following President Tayyip Erdogan's victory in May elections and U-turn towards greater orthodoxy in economic policy.

The "tight monetary stance will...