The Central Bank of the Republic of Türkiye (CBRT) on Thursday lifted its benchmark one-week repo rate by 500 basis points from 30% to 35% in line with market expectations, reaffirming its monetary tightening cycle drive following the U-turn in economic policies.

"The committee decided to continue the monetary tightening process to establish the disinflation course as soon as possible," the bank said in a statement following its Monetary Policy Committee (MPC) meeting.

The bank’s policy committee reiterated that it is ready to raise rates further as needed to curb inflation and would continue to make decisions on "quantitative tightening" and "selective credit tightening" to support the country’s monetary policy stance.

After years of pursuing loose policy, the central bank reversed course after May’s elections and began raising rates to bring down inflation, which touched 61.5% in the 12 months to September.

The median estimate of 20 economists in a Reuters poll for the policy rate was 35%, up from the previous 30%. Four economists forecasted a hike of 250 basis points, and one expected a lift of 300 basis points.

This week, an Anadolu Agency (AA) survey predicted a 500-point hike from the bank.

The median expectation of 27 institutions participating in Bloomberg HT’s survey was that the interest rate would increase by 500 basis points to 35% in October.

After winning reelection in May, President Recep Tayyip Erdoğan named a new Cabinet, including two accomplished bankers, former Merrill Lynch banker Mehmet Şimşek, who returned as finance minister and Hafize Gaye Erkan who took over as central bank governor.

The new economic administration launched aggressive interest rate hikes to tackle the country’s long-term inflation issue. The one-week repo rate has risen by 2,650 basis points since June.

"The central bank’s focus has remained on anchoring inflation expectations and achieving disinflation ... A hike to 35% would lead to a positive ex-ante real policy rate based on the 33% inflation forecast for 2024 in the medium-term plan," Reuters cited ING in its research note earlier this week.

"The strong course of domestic demand, the stickiness of services inflation, and the deterioration in inflation expectations continue to exert upward pressure on inflation," the bank warned in its report, adding that the year-end inflation is projected to be close to the upper bound of the forecast range provided in the Inflation Report earlier this year.

"On the other hand, geopolitical developments pose risks to the inflation outlook due to oil prices," the bank said.

"Guided by impact analyses, the simplification process is advancing gradually," the statement of CBRT read.

Furthermore, it added that the monetary transmission mechanism would be further strengthened by taking additional steps to increase the share of Turkish lira deposits.