The Turkish flag flies above the DenizBank building. Türkiye is expected to hold a vote on Sunday.
Ismail Fedous | Bloomberg | Getty Images
Turkey’s central bank kept its key interest rate unchanged on Thursday, keeping it at 45% despite soaring inflation after eight consecutive months of rate hikes.
The move was widely expected as the central bank said in January that a 250 basis point hike would be the last for the year, even though inflation is currently around 65%.
Consumer prices in the country of 85 million people rose 6.7% last month from December, the biggest monthly increase since August, according to Turkey’s central bank. The annual growth rate was 64.8% in January.
Since May 2023, Turkey’s key interest rate has climbed a cumulative 3,650 basis points. The latest decision to hold interest rates steady rather than cut them shows that newly appointed Turkey Central Bank Governor Fatih Karahan is in line with the strategy of his predecessor Hafize Erkan. Callahan took office in early February.
Analysts viewed the central bank’s subsequent press statement as hawkish and signaling that interest rates would not be eased in the near future.
“The Committee assesses that it will maintain the current policy rate level until the underlying trend in monthly inflation declines significantly and sustainably and inflation expectations converge to the expected forecast range,” the bank’s statement said. “If the inflation outlook is expected to be significant and sustained, If the situation continues to deteriorate, the stance of monetary policy will be tightened.”
Economists expect current interest rates to be maintained for most of 2024 and expect inflation to roughly halve by the end of the year – meaning monetary easing is still likely.
“We believe an extension of the rate pause is likely in the coming months. With inflation likely to reach 30-35% by year-end (largely in line with CBRT’s 36% forecast), the central bank remains likely Capital Economics Senior Emerging London “The Fed will initiate an easing cycle before the end of the year, which is what many analysts expect,” market economist Liam Peach wrote in a note Thursday. “
“But our base view remains that rates will remain unchanged throughout this year, with a rate cut not coming until early next year.”
