Turkish lira banknotes are pictured at a currency exchange office in Istanbul, Turkey. Image Credit: REUTERS

Istanbul: Turkey’s central bank signalled it would take action against “significant risks” to price stability, a rare move to calm financial markets after inflation surged to its highest in nearly a decade and a half.

The comments, seen as presaging an interest-rate increase at the bank’s next meeting on September 13, underscore the volatile outlook for prices amid a currency crisis. The lira has lost 40 per cent of its value against the dollar this year, driving up the cost of goods from potatoes to petrol and sparking alarm about the impact on the wider economy.

Inflation jumped 17.9 per cent year-on-year in August, official data showed, outstripping market expectations and marking its highest level since late 2003.

“Recent developments regarding the inflation outlook indicate significant risks to price stability. The central bank will take the necessary actions to support price stability,” the bank said shortly after the release of the inflation data.

President Recep Tayyip Erdogan, a self-described “enemy of interest rates”, wants to see lower borrowing costs to keep credit-fuelled growth on track. Economists, who fear the economy is set for a hard landing, want big rate hikes.

Finance Minister Berat Albayrak said in an interview on Sunday that the bank was independent of the government and would take all necessary steps to combat inflation. He also promised a “full-fledged fight” against inflation.