Türkiye's central bank hikes policy rate to 15%

ANKARA

Türkiye’s Central Bank has increased its policy rate - one-week repo rate - from 8.5 percent to 15 percent.

The rate hike was widely expected after Mehmet Şimşek once again took the helm at the economy management and Hafize Gaye Erkan was appointed as the new Central Bank Governor.

“The committee decided to begin 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.

This marked the first interest rate hike the bank delivered since March 2021, when the policy rate was increased from 17 percent to 19 percent.

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, the bank added.

“Recent indicators point to an increase in the underlying trend of inflation. The strong course of domestic demand, cost pressures and the stickiness of services inflation have been the main drivers. In addition to these factors, the committee anticipates that the deterioration in pricing behavior will put further pressure on inflation.”

The committee will determine the policy rate 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.

To increase the functionality of market mechanisms and strengthen macro financial stability, the committee will simplify and improve the existing micro- and macroprudential framework. Guided by impact analyses, the simplification process will be gradual, according to the statement.

“We agreed [for Şimşek] to take the steps he will take quickly and easily, together with the Central Bank,” President Recep Tayyip Erdoğan told reporters on June 14 on his way back to Türkiye from a visit to Azerbaijan, voicing his support for the new finance minister.