Turkey’s central bank has increased its policy rate by 500 basis points to 35%, marking the third consecutive month of aggressive tightening as part of efforts to address the persistently high inflation levels in the country.
The move comes as inflation in Turkey reached an annual rate of 61.53% in September and is anticipated to continue rising into the next year. The central bank’s policy committee emphasized its readiness to implement further rate hikes if necessary to curb inflation.
The one-week policy repo rate has witnessed a cumulative increase of 2,650 basis points since June. Analysts widely anticipate additional tightening measures by the central bank to narrow the gap with inflation.
Commenting on the decision, Timothy Ash, senior strategist at BlueBay Asset Management, noted that the central bank’s move aligns with expectations. He suggested the possibility of two more 500 basis points hikes by the end of the year, potentially resulting in policy rates reaching 45%.
The central bank justified its decision by stating that it aims to expedite the disinflation process, anchor inflation expectations, and control the deterioration in pricing behavior. The Turkish lira experienced a slight weakening against the dollar following the announcement, continuing a trend of depreciation influenced by President Tayyip Erdogan’s historical opposition to high interest rates and his influence over the central bank.
