Turkey’s central bank governor Hafize Gaye Erkan has been busy in the past two weeks meeting with business groups as part of her campaign to persuade company chiefs that the pain of the country’s new high-interest rate path is a pain worth bearing.

Although the regulator jacked up its benchmark rate from 8.5% to 40% in the space of just five months, the indicator still trails Turkey’s official annual inflation, running at 62%. With the fight against inflation thus far from over, any abandonment of the high rates policy in the near future would risk Erkan’s strategy unravelling. If business groups were to complain loudly to President Recep Tayyip Erdogan—known for his previous "unorthodox" commitment to low rates even in the face of rampant inflation—about the difficulties caused by costly loans ahead of the Turkish local elections due at the end of March, their expressed unhappiness might raise the chances of the central bank being forced to quit on its “no pain, no gain” argument.

Central bank data shows that the weighted average interest rate on commercial loans rose to almost 53% as of the first week of December.

“We’re witnessing a very aggressive rise in commercial loan interest rates,” Istanbul Chamber of Industry (ISO) chairman Erdal Bahcivan said at a meeting with Erkan in November, as reported by Bloomberg. “This situation has brought significant tightening in financing conditions in our industrial sector,” he added.

Bahcivan reportedly acknowledged some steps that the central bank has taken to provide better access to credit, including easing lending rules applicable to banks, but called for more.

Erkan, an ex-Wall Street investment banker appointed in June following the re-election of Erdogan, has made the case that the central bank’s mandate to ensure price stability is of particular importance to the real sector.

Investors, meanwhile, see Turkey as a bond hotspot in 2024 if Erdogan allows the market-friendly policies to continue, Bloomberg also reported, noting on December 14 that the country’s local-currency bonds, long shunned by foreign investors, saw the biggest inflow in at least three years last week, as more foreigners took the plunge.

However, many analysts make the case that so far foreign interest has only trickled back.

Also on December 14, the cost of insuring Turkey's debt against default narrowed to a near-three-year low, data from S&P Global Market Intelligence showed.

Turkey's five-year credit default swaps (CDS) hit 300 bp by mid-morning, from 316 bp at December 13’s close.