Defying Erdogan, Turkey’s Central Bank Raises Interest Rates

In a statement announcing its move, the Turkish central bank said there were “upside risks” to inflation, despite “weaker domestic demand conditions.” It added that, as a result, it had “decided to implement a strong monetary tightening to support price stability.”

For nearly two decades, Turkey had uninterrupted growth that helped reduce poverty, increase the ranks of the middle class and, until recently, turned the nation into a darling of international investors.

But the growth was built chiefly on a construction boom fed by cheap credit and an avalanche of government spending that Mr. Erdogan poured into the economy to stimulate even more activity. That success story has become increasingly unsustainable.

On the ground, the plunge in the lira has had an impact on daily life in a litany of ways, affecting even the availability of pharmaceutical supplies. Major drug wholesalers in Turkey are running low on stocks, and soon many antibiotics, as well as drugs for oncology, as well as cardiovascular and neurological ailments, will fall out of date, according to Vedat Bulut, the president of the Ankara Chamber of Pharmacists.

“Hundreds of thousands of people will be affected,” Mr. Bulut said. “Especially for cancer patients, a delay of even a few days in treatment may cause metastasis.”

The lira’s dizzying ups and downs have mirrored many of the challenges faced by emerging market currencies. As the Federal Reserve has begun increasing interest rates in the United States and as the European Central Bank looks to withdraw monetary stimulus of its own, investors have become less tolerant of the risks present in many smaller developing countries, and have begun pulling their cash. The South African rand has lost almost a fifth of its value since the start of the year, while the Indonesian rupiah has declined nearly 10 percent and the Indian rupee 13 percent in the same period.

The lira has since recovered many of its losses. At its weakest, in mid-August, 7.2 lira were required to buy one dollar, but at one point on Thursday the Turkish currency had strengthened to 6 against the dollar.

While Turkey remains a relatively minor economy in the global context — its annual output is about the same as that of a country like the Netherlands — several European banks have investments or subsidiaries there. That exposes the region to risks emanating from Turkey, even as the European Union grapples with its own challenges, including a trade dispute with the United States and concerns over slowing economic growth.

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