(Bloomberg) -- Turkey’s central bank delivered its seventh straight interest-rate hike as part of efforts to curb inflation that’s seen accelerating to 70% in the coming months.

The Monetary Policy Committee, under Governor Hafize Gaye Erkan, lifted the benchmark rate to 42.5% on Thursday, as expected and up from 40%.

All but one of 27 analysts surveyed by Bloomberg predicted the move correctly.

The move marks a slowing of the bank’s aggressive tightening, which has lifted Turkey’s policy rate from 8.5% since President Recep Tayyip Erdogan was reelected in May. At each of its previous four meetings, the MPC had hiked by at least 500 basis points.

The tightening cycle will finish “as soon as possible,” the MPC said.

Erkan and Finance Minister Mehmet Simsek, both appointed in June, have sought to reverse years of loose monetary and fiscal policies that caused investors to flee Turkey, hammered the lira and triggered a cost-of-living crisis.

Turkey’s real rates remain deeply negative, with year-on-year inflation at 62% in November and not expected to peak until May. But Erkan has urged fixed income investors to focus on projected inflation of 36% at the end of 2024.

There are signs she’s getting her message across. Foreign holdings of lira bonds have more than doubled since last month, while Turkey’s dollar-bond and credit-default swap spreads have fallen sharply.

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Turkish stocks jumped after the rate decision but then paired their gains. The lira was little changed at 29.16 per dollar.

The MPC said higher rates will be complemented by quantitative tightening to rein in lira liquidity. Shortly after the decision, the central bank announced a slew of such measures.

It will restart so-called lira “deposit-purchase auctions” for the first time in years. These are designed to help make the benchmark rate more effective at reining in lira liquidity.

“As part of policies that prioritize Turkish lira deposits, steps supportive of Turkish lira deposits will continue to be taken,” the central bank said.

It also lowered the lira bond-purchase ratio for banks’ foreign-currency liabilities to 4% from 5%. Yields on five-year lira bonds rose afterwards by 67 basis points to 28.9%.

Last Hike?

“This will almost certainly not be the last rate rise in this cycle,” said Cagri Kutman, a London-based Turkish specialist at boutique bank KNG Securities. “There is much still to be done in taming inflation but the bond market is optimistic that Turkey is on the right track.”

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Others, including Deutsche Bank AG and Morgan Stanley, differ, saying they the benchmark will probably be increased again to 45% in January. Bloomberg Economics’ Selva Bahar Baziki also sees the central bank only stopping after hiking again next month by 250 basis points.

A new year increase to the minimum wage could yet change the policy path envisaged by authorities, given the potential impact on inflation. 

Morgan Stanley and Goldman Sachs Group Inc. suggest the central bank could keep the door open for higher rates if the minimum wage is hiked higher than expected. The two Wall Street banks see the lowest pay rising by about 40-50%. 

“The size of the annual minimum-wage hike in January is especially important,” Goldman analysts including Basak Edizgil said in a note.

Erdogan sharply raised the minimum wage twice this year as a way to ease living costs — and also to bolster his support ahead of the presidential elections he went on to win. More than a third of Turkey’s labor force earns minimum wage.

Read more: Moody’s Links Turkey Outlook Update to Wages, Orthodox Policies

Turks go to the polls again in March for municipal elections and Erdogan wants to win back major cities such as Istanbul and Ankara.

Still, since starting a third term in office, the president has toned down his fixation with ultra-low interest rates and allowed his market-friendly team of technocrats to have more control over economic decisions.

He’s said wages will only be adjusted once next year.

Erkan said wage raises and energy prices would factor into the monetary authority’s tightening path.

“The way in which we move in tightening policy will be mostly shaped by how fast we enter disinflation and to what extent we’re successful,” she told a local newspaper in an interview.

--With assistance from Tugce Ozsoy and Selcan Hacaoglu.

(Updates throughout.)

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