ISTANBUL - Turkey saw the inflation rate rise to nearly 18 percent in August, a 15-year high fueled by a collapse in the Turkish lira, which fell more than 20 percent over the past few weeks.

The rising inflation and a falling currency are stoking fears Turkey is on the verge of financial and economic crisis.

"It's the beginning of the slippery slope. It's going to get worse unless there is a miraculous improvement in the exchange rate," political analyst Atilla Yesilada of Global Source Partners said. "We've reached the stage where there is nothing to anchor price expectations. People simply can't gauge what prices or wages or costs will be next month."

"It's a very dismal set of numbers. The likelihood is headline inflation will reach 20 percent in (the) coming months," economist Inan Demir of Nomura Securities said. "This is clearly a set of numbers that warrant a monetary response from inflation targeting the central bank."

A picture taken on Aug. 14, 2018 shows the logo of A picture taken on Aug. 14, 2018 shows the logo of Turkey's Central Bank (TCMB) at the entrance of the bank's headquarters in Ankara, Turkey A picture taken on Aug. 14, 2018 shows the logo of Turkey's Central Bank (TCMB) at the entrance of the bank's headquarters in Ankara, Turkey

The Turkish Central Bank, in a statement on its website, vowed to act, promising to use all tools at its disposal and reshape its monetary policy stance at a Sept. 13 meeting where they will discuss interest rates.

The lira recouped much of its initial heavy losses following the release of the latest inflation figures.

"This (the central bank statement) is seen as a signal for a rate hike in that meeting," Demir said. "Even though the wording of the statement is very uncertain, the expectation of tightening are curbing lira weakness after bad inflation numbers."

Turkish President Tayyip Erdogan attends a news co Turkish President Tayyip Erdogan attends a news conference in Ankara, Turkey, Aug. 14, 2018. Turkish President Tayyip Erdogan attends a news conference in Ankara, Turkey, Aug. 14, 2018.

International criticism

International investors sharply criticized the central bank for failing to aggressively raise interest rates to rein in inflation and defend the currency. Turkish President Recep Tayyip Erdogan's influence is widely seen as responsible for the failure of the bank to act. Erdogan has repeatedly voiced opposition to raising interest rates.

"There will be a massive sell-off to the point of panic if they don't raise rates," Yesilada said. "This time, they have no option, even if they meant something else (in their statement), as everyone interpreted it as rates will be hiked. But there are two questions: by how much, and will it help at all?" he added.

Investors and analyst claim the central bank needs to raise rates by at least 4 percent, while some suggest a 10 percent raise is needed to avoid further drops in the currency, which analysts warned would open the lira to further pressure.

"In such a scenario, Turkish residents would want to hold more FX (foreign exchange) rather than Turkish lira ... to protect their savings. That is a big risk to the currency," Demir said.

Already, 40 percent of individual accounts in banks are in foreign currency.

However, an aggressive increase in rates may not be enough to rein in inflation or defend the lira, analysts warned.

"The concerns are on multiple fronts," Demir said.

U.S. pastor Andrew Brunson reacts as he arrives at U.S. pastor Andrew Brunson reacts as he arrives at his home after being released from the prison in Izmir, Turkey, July 25, 2018. U.S. pastor Andrew Brunson reacts as he arrives at his home after being released from the prison in Izmir, Turkey, July 25, 2018.

"What Turkish policy needs to do is straightforward," he added. "They need to hike rates, tighten fiscal policy (cut government spending) and ease tensions with the United States, removing the threat of further sanctions by releasing (American) pastor (Andrew) Brunson.

"There is a way out of this, but it's not obvious that the policymakers will take that way," Demir said.

President Donald Trump boards Air Force One as he President Donald Trump boards Air Force One as he departs from Joint Base Andrews in Maryland, U.S. Aug. 30, 2018. President Donald Trump boards Air Force One as he departs from Joint Base Andrews in Maryland, U.S. Aug. 30, 2018.

US trade tariffs

Last month's imposition of trade tariffs by U.S. President Donald Trump over the ongoing detention of Brunson was the trigger for the latest rout in the Turkish currency. Brunson is on trial on terrorism charges, a case dismissed by Washington as politically motivated.

Ignoring U.S. pressure, Turkey's top appeals court judge, Rustu Cirit, on Monday supported Erdogan's refusal to release Brunson, saying the pastor's release is a matter only for the courts.

"To use brute force to reverse this fact, which is a basic principle of contemporary democracies and law of nations, would mean weakening human rights, rather than strengthening them," Cirit said.

Trump is warning of further sanctions against Turkey if Brunson is not released. American regulatory authorities are considering reportedly a multibillion-dollar fine against Turkish state-controlled Halkbank for violations of Iranian sanctions.

Analysts warn the financial implications of an escalation of U.S.-Turkish tensions will continue to undermine confidence in the lira. However, Erdogan continues to take a robust stance against Washington, insisting the Turkish economy remains strong.

Berat Albayrak, Turkey's Treasury and Finance Mini Berat Albayrak, Turkey's Treasury and Finance Minister, talks during a conference in Istanbul, Aug. 10, 2018, in a bid to ease investor concerns about Turkey's economic policy. Berat Albayrak, Turkey's Treasury and Finance Minister, talks during a conference in Istanbul, Aug. 10, 2018, in a bid to ease investor concerns about Turkey's economic policy.

"The list of concerns is long, definitely, but the chief concern I have right now is the policymakers. They need to accept first that there is a significant problem that needs to be addressed," Demir said. "But we heard this morning from finance minister (Berat) Albayrak that short-term fluctuations in inflation are normal. "

Turkey already seems set to face a severe recession. Similar depreciations of the currency in past decades was accompanied by a double-digit contraction of the economy.

Analysts warn the stress on the economy will only grow.

"Each day, Ankara lingers or prevaricates the likelihood of a disaster event increases. Right now, the threat is very low, it's manageable. But as winter approaches, the likelihood increases exponentially," Yesilada said.