The decision to raise the interest rate comes after a pause last month, defying expectations of another freeze. However, persistent chronic inflation remains a concern.
Turkey’s central bank has taken the unexpected step of increasing its key interest rate as the country grapples with soaring inflation.
In an announcement on Thursday, the Central Bank of Turkey revealed that it has raised the policy rate, also known as the one-week repo auction rate, to 50%, up from the previous 45%. The decision was attributed to higher-than-expected inflation figures recorded in February.
The bank stated in a press release, “While imports of consumption goods and gold have slowed down, contributing to an improvement in the current account balance, other recent indicators suggest that domestic demand remains resilient. Persistent services inflation, inflation expectations, geopolitical risks, and food prices are among the factors keeping inflation pressures alive.”
The central bank highlighted that the choice to resume interest rate hikes, following a brief hiatus last month that led market analysts to anticipate another hold, was prompted by a “deterioration in the inflation outlook”.
Indeed, inflation continues to surge in Turkey, with core consumer prices rising by 72.89% in February compared to the same period in 2023. Annual inflation reached nearly 70% in February, marking the highest level in 15 months.
“The tight monetary stance will be upheld until a notable and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations align with the projected forecast range,” stated the central bank. Additionally, it anticipates witnessing disinflation in the second half of 2024.
This decision signifies the first interest rate hike under the leadership of the new central bank governor, Fatih Karahan.
In February, President Recep Tayyip Erdoğan appointed Karahan as the new central bank governor, succeeding Hafize Gaye Erkan, who resigned amidst allegations of nepotism reported in local media. Erkan, Turkey’s first female governor and a former US-based bank executive, vigorously refuted the accusations.
Source: https://www.euronews.com/business/2024/03/21/turkey-hikes-interest-rate-to-50-in-surprise-move
