Turkey’s central bank implements aggressive interest rate hike

WEB DESK: Turkey’s central bank made a surprising decision on Thursday, opting to increase the interest rate by 500 basis points to 50 per cent. This move came amidst concerns over a worsening inflation outlook.

According to recent data, Turkey’s annual inflation surged to 67.07 per cent in February, up from 64.86 per cent in the previous month.

In a statement released, the central bank stressed its commitment to maintaining a tight monetary stance until a significant and sustained decline in monthly inflation is observed, and inflation expectations align with projected forecasts.

Additionally, it stated that monetary policy would be further tightened if there is a significant and persistent deterioration in inflation.

The central bank has set a projection of 36 per cent inflation by the end of this year and 14 per cent for the following year.

To bolster this tightening measure, adjustments were made to the policy operational framework, with the overnight borrowing and lending rates set 300 basis points below and above the repo rate.

Piotr Matys, a senior FX analyst at In Touch Capital Markets in London, expressed surprise at the rate hike, stating that it had “stunned the market.”

He further noted that this decision sends a strong signal of determination from Governor Fatih Karahan, who took over from Hafize Gaye Erkan after her unexpected resignation, to address the significantly high inflation rate.