Türkiye’s Central Bank increases benchmark interest rate to 45 percent
ANKARA
The Central Bank of Türkiye has hiked its key interest rate by another 250 basis points to 45 percent, also signaling an end to its aggressive tightening cycle.
The monetary tightness required to establish the disinflation course is achieved and this level will be maintained “as long as needed,” the bank’s Monetary Policy Committee (MPC) said in a statement after its meeting yesterday said.
“The committee assesses that the current level of the policy rate will be maintained until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range. The committee will reassess the stance of monetary policy if notable and persistent risks to inflation outlook emerge,” it added.
The hike comes amid an ongoing battle against double-digit inflation for Türkiye’s monetary policymakers, with the rate hike the latest step in that effort.
“The existing level of domestic demand, stickiness in services inflation, and geopolitical risks keep inflation pressures alive,” the MPC said.
“On the other hand, recent indicators suggest that domestic demand continues to moderate in line with the projected disinflation process as monetary tightening is reflected in financial conditions,” the statement read.
Inflation in Turkey increased to 64.8 percent year-on-year in December, up from 62 percent in November, and the Turkish Lira hit a new record low against the U.S. dollar earlier this month, breaking 30 to the greenback for the first time.
“The committee also assesses that inflation expectations and pricing behavior continued to show signs of improvement,” the MPC said.
“External financing conditions, strengthening in foreign exchange reserves, rebalancing in current account balance, and demand for Turkish lira denominated assets continue to contribute to exchange rate stability and the effectiveness of monetary policy.”
Indicators of inflation and underlying trend of inflation will be closely monitored, said the MPC, adding that it will continue to decisively use all the tools at its disposal in line with its main objective of price stability.
“To increase the functionality of market mechanism and strengthen macro financial stability, the committee continues to simplify and improve the existing micro- and macroprudential framework,” it said.
Taking into account the lagged effects of monetary tightening, the committee will continue to determine its policy decisions 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.
