Turkey’s central bank took a more significant step than anticipated by raising interest rates to 25% on Thursday. This move demonstrates the bank’s commitment to tackling inflation through its monetary policy strategy. The previous main policy rate stood at 17.5%, and economists surveyed by Reuters had predicted a moderate increase to 20%.
In response to this news, the struggling Turkish lira saw a positive boost against both the euro and the U.S. dollar. The central bank committee of Turkey, in a statement released on Thursday, conveyed its decision to persist with the process of tightening monetary measures. The objective is to swiftly establish a path towards reducing inflation, anchoring inflationary expectations, and managing the deteriorating pricing patterns.
Due to the consistent and elevated inflation rates, the central bank recently adjusted its projection for year-end inflation from 22.3% to 58%. The bank’s latest announcement on Thursday indicated its anticipation that year-end inflation would align with the upper range of the projected figures.
Back in June, Turkish President Recep Tayyip Erdogan appointed Hafize Gaye Erkan, a former Wall Street banker, as the new governor of the central bank. This choice signaled a departure from the country’s contentious approach of lowering interest rates in the face of soaring inflation. Subsequently, the central bank has implemented two increases in interest rates, although the July adjustment fell short of what the market had expected.
(Source: Jenni Reid | CNBC )
