A picture taken on August 14, 2018 shows the logo of Turkey’s Central Bank at the entrance of its headquarters in Ankara, Turkey.
ADEM ALTAN | AFP | Getty Images
Turkey’s central bank on Thursday raised its key interest rate, the one-week repo rate, from 45% to 50%, citing the continuing need to counter climbing inflation in the country.
“In February, led by services inflation, the underlying trend of monthly inflation was higher than expected,” the bank’s Monetary Policy Committee said in a statement following the decision. It noted that imports of consumption goods and gold slowed, which improved Turkey’s current account balance, but that domestic demand remaining “resilient.”
“Stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflation pressures alive,” the statement said. “The Committee closely monitors the alignment of inflation expectations and pricing behavior with projections, and the impact of wage increases on inflation.”
Turkish annual consumer price inflation soared to 67% in February, fueling concerns that Turkey’s central bank — which had indicated a month prior that its painful eight-month-long rate-hiking cycle was over — might have to return to tightening.
The Monetary Policy Committee made it clear that it would not shy away from further hikes, if these are needed to keep its inflation targets on track.
“In response to the deterioration in the inflation outlook, the Committee decided to raise the policy rate. Tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range,” it said.
“Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.”
For Timothy Ash, an emerging markets strategist at BlueBay Asset Management, the rate rise shows a dedication to tackling inflation and should reassure investors of the central bank’s independence. Expectations were heavily slanted toward a rate hold ahead of local elections in Turkey due to take place on March 31.
“Hugely positive move by the CBRT, hiking against expectations by 500bps to 50%,” he said, referring to the Turkish central bank by its acronym.
“Note the narrative had been that the CBRT could not hike before local elections as Erdogan had not given them the green light. This move shows that Simsek and the CBRT have been given a strong mandate to do whatever its takes to fight inflation,” Ash said, referencing Turkish Finance Minister Mehmet Simsek. “They are proving their independence now.”
Read More:Turkey central bank raises interest rate to 50%
2024-03-21 11:08:41