Türkiye’s central bank raises interest rates to 50% | Wilnesh News

Turkey’s central bank raised its key interest rate, the one-week repo rate, from 45% to 50% on Thursday as the country still needs to deal with rising inflation.

“In February, the underlying trend of monthly inflation was higher than expected, driven by service sector inflation,” the central bank’s Monetary Policy Committee said in a statement after the decision. The report noted that imports of consumer goods and gold slowed, which improved Turkey’s current account balance, but domestic demand remained “resilient.”

“Service sector inflation, inflation expectations, geopolitical risks, and the stickiness of food prices have continued inflationary pressures,” the statement said. “The Committee closely monitors the consistency of inflation expectations and pricing behavior with forecasts, as well as the impact of wage increases on The impact of inflation.”

Turkey’s annual consumer price inflation surged to 67% in February, raising concerns that Turkey’s central bank may have to return to tightening policy – a month after it said its painful eight-month interest rate hike cycle had ended Finish.

The Monetary Policy Committee made clear that it would not shy away from further interest rate increases if further increases are needed to keep the inflation target on track.

“In response to the worsening outlook for inflation, the Committee decided to raise the policy rate. The tight monetary stance will be maintained until a significant and sustained decline in the underlying monthly inflation trend is observed and inflation expectations converge within the expected range,” it said.

“If inflation is expected to worsen significantly and sustainably, the stance of monetary policy will tighten.”

For Timothy Ash, emerging markets strategist at BlueBay Asset Management, raising interest rates demonstrates the government’s commitment to fighting inflation and should reassure investors of the central bank’s independence. Ahead of Turkey’s March 31 local elections, the market is generally expected to keep interest rates unchanged.

“CBRT made a huge positive move, rising 500 basis points to 50% above expectations,” he said, referring to the Central Bank of Turkey, which stands for the Central Bank of Turkey.

“Please note that the argument has been that the CBRT was unable to raise rates before the local elections because Erdogan did not give them the green light. This move shows that Simsek and the CBRT have been given a strong mandate to do whatever it takes to fight inflation. ” Turkish Finance Minister Mehmet Simsek was quoted as saying. “They are now proving their independence.”

Turkish lira USD/USD was trading at 32.13 shortly after the announcement, hovering near the all-time low of 32.358 hit on Tuesday. Turkey’s troubled currency has lost 40% of its value against the dollar over the past year and 82.6% over the past five years.

As foreign reserves decline, Turkish President Recep Tayyip Erdogan steadfastly refuses to raise interest rates, calling them the “mother of all evil” and insisting against economic orthodoxy that lower interest rates are the way to go. Inflation in Turkey Climb sharply over several years to cool inflation.

The eventual return to orthodox policy resulted in the appointment of a new fiscal and monetary policy team and a cumulative 3,650 basis points of interest rate hikes between May 2023 and January 2024.

Bartosz Sawicki, a market analyst at fintech firm Conotoxia, said that while current guidance from policymakers has reassured many investors, the country of 85 million people remains in trouble.

“Turkey’s monetary policy has entered a critical phase. The long-known vicious cycle of fragility appears to be gathering momentum again. Inflation refuses to abate, the lira is under new pressure, and foreign capital inflows appear to be losing steam, exposing the risk of depletion.” foreign exchange reserves,” Savage wrote in an analysis note.

“It has quickly become apparent that even a cumulative 3,650 basis points of interest rate increases since the May 2023 presidential election will not be enough to quickly address the imbalances created by years of irresponsible and unorthodox policies.”