Türkiye's central bank is expected to raise its benchmark policy rate sharply on Thursday, in a strong signal that reelected President Recep Tayyip Erdoğan has accepted some steps toward monetary tightening to combat inflation.

The expected policy pivot, under new central bank chief Hafize Gaye Erkan, comes amid stubborn inflation that had hit a 24-year high of 85.5% in October, before more than halving and lastly declining to below 40% last month.

Erdoğan reshuffled his economic team after reelection last month, bringing in Mehmet Şimşek, the respected veteran policymaker, as treasury and finance minister, and Erkan, a former Wall Street banker, as central bank governor.

In his comments last week, Erdoğan expressed his backing for the duo and said Şimşek would take quick steps in coordination with the central bank. Yet, he stressed it was a mistake to suggest he had changed his own stance when it comes to interest rates.

A critic of high borrowing costs, Erdoğan over the past two years endorsed a "new economic model" that prioritizes ultra-low interest rates. The model aimed at achieving price stability by slashing borrowing costs, boosting exports and flipping chronic current account deficits to surpluses.

The inflation surged amid a depreciation in the Turkish lira that came after the country opted for an easing drive that saw its central bank slash its key policy rate to 8.5% currently from 19% in 2021.

The lira has declined some 20% against the U.S. dollar so far this year. It had dropped 44% in 2021 and 30% in 2022.

All 18 economists in a Reuters poll predicted a rise in the one-week repo rate. But the level remains uncertain as the central bank has not given any signals as to its next steps, including the size or pace of potential hikes.

The median estimate was for a hike of 1,250 basis points to 21% this month. Predictions ranged from 12.50% to 30%, with some economists thinking hikes will be more gradual.

Malek Drimal, lead CEEMEA strategist at Societe Generale, forecast a hike to 15% and commitment to more hikes in the coming months, with the policy rate reaching 25% in August.

"However, our clients would typically like to see a substantial tightening very soon – in the area of a 15-25% hike at the next meeting," he said.

"We believe that even a more gradual hiking cycle – accompanied by hawkish messages and a push to return to orthodoxy in general – might be sufficient to stabilize the lira during the summer, with the help of tourist revenues."

All but one of 13 economists in the poll saw further tightening this year. The median estimate for the policy rate at end-2023 was 30%, with forecasts ranging from 18% to 35%.

Erdoğan said last week he had approved the policy steps that Şimşek, highly regarded by financial markets, will take with the central bank, suggesting he has given the green light to rate hikes.

Ratings agency Moody's said on Tuesday proof that Türkiye has shifted toward more orthodox and predictable economic policymaking would be "unequivocally credit positive."

Erdoğan has also said his views on interest rates have not changed, and the goal is to ultimately lower inflation, as well as rates, to single digits.