ISTANBUL: Turkey’s central bank hiked rates by 200 basis points to 19% on Thursday, twice the market expectation in what it called a “front loaded” move to head off rising inflation and a sliding lira, which rallied nearly 2% in response.

The decision had been seen as a test of new Central Bank Governor Naci Agbal’s battle against double-digit inflation and his hawkish recent rhetoric, given President Tayyip Erdogan’s repeated opposition to tight policy.

Analysts said he more than passed the credibility test, clearing the way to higher rates for longer than expected as the major emerging market (EM) economy rebounds from the coronavirus pandemic.

“Abgal is clearly keen to embellish his inflation-fighting credentials and thus was willing to go above and beyond what investors had demanded,” said Jason Tuvey, senior EM economist at Capital Economics.

Almost all of the 21 economists polled by Reuters expected a 100-point rate hike. The lira responded with a jump to 7.353 against the dollar, its strongest level in two weeks.

Turkey’s one-week repo policy rate is the highest of any big economy and it is back to levels last touched in mid-2019. It had stood at 17% since December after aggressive monetary tightening last year.

Market expectations for a hike shot up after US bond yields jumped and the lira lost as much as 10% since mid-February. Inflation also rose more than expected to nearly 16% last month, well above a 5% target.

Currency depreciation raises inflation in import-dependent Turkey.

The bank “decided to implement a front-loaded and strong additional monetary tightening,” its policy committee said. It repeated that a tight stance would be held “decisively” for an extended period and promised more rate hikes if needed.