Central Bank raises policy rate 500 basis points to 30%

ANKARA

Türkiye’s Central Bank has delivered another large rate hike, increasing the main policy rate by 500 bps to 30 percent.

The hike in the one-week repo auction rate was in line with market expectations. That came on top of the cumulative 1,650 bps increase in the policy rate in the previous three months, bringing the total hike to 2,150 bps since June.

The committee decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior, the bank said in a statement released after the Monetary Policy Committee meeting on Sept. 21.

The policy rate will be determined in a way that will create monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term, the bank said.

“Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved.”

Indicators of inflation and underlying trend of inflation will be closely monitored, and the committee will continue to decisively use all the tools at its disposal in line with its main objective of price stability, it said.

The annual inflation rate climbed from 47.8 percent in July to 58.9 percent in August, with consumer prices rising 9.1 percent monthly.

Inflation readings were above expectations in July and August, the bank noted in the statement, warning that as the strong course of domestic demand and the stickiness of services inflation persist, the increase in oil prices and the ongoing deterioration in inflation expectations pose additional upside risks to inflation.

Tax regulations and cost pressures stemming from wages and exchange rates, which have been pushing up inflation, have broadly passed through to prices, and the underlying trend in monthly inflation is on course to decline, according to the bank.

“Given the monetary tightening stance, the committee is determined to establish the disinflation course in 2024.”

To increase the functionality of market mechanisms and strengthen macro-financial stability, the committee continues to simplify and improve the existing micro- and macroprudential framework, it said.

Guided by impact analyses, the simplification process will continue to be gradual, the bank reiterated.

“In this context, recent regulations targeting a rising share of Turkish lira deposits strengthen the monetary transmission mechanism. In addition to the increase in the policy rate, the committee will continue to make decisions on quantitative tightening and selective credit tightening to support the monetary policy stance.”