Türkiye’s inflation rate climbs to 68.5% despite continued interest rate hikes | Wilnesh News

Turkey’s annual inflation rate rose to 68.5% in March, up from 67.1% in February, according to the Turkish Central Bank. The Turkish Statistical Institute released the report on Wednesday.

Consumer prices increased by 3.16% month-on-month, with prices for education, communications, accommodation and catering rising by 13%, 5.6% and 3.9% respectively from the previous month.

On an annual basis, education cost inflation was once again the highest, with an annual increase of 104%, followed by hotels, restaurants and cafes, with an increase of 95%, and health care with an increase of 80%.

Turkey has taken concerted action to combat surging inflation by raising interest rates, most recently raising the country’s key interest rate from 45% to 50% in late March.

Much of the inflation in recent months has been driven by major Raise the minimum wage This is the minimum wage set by the Turkish government for 2024. In January, the minimum wage for the year rose to TL 17,002 (approximately US$530) per month, a 100% increase from the same period last year.

Economists expect the central bank to further raise interest rates.

While March’s inflation reading represents “the smallest monthly increase in three months and suggests that the impact of January’s sharp minimum wage increase may now be largely behind us, it is still far from the single-digit inflation that policymakers are trying to control.” Far from it,” Nicholas Farr, emerging Europe economist at London-based Capital Economics, wrote in an analyst note on Wednesday.

“The latest inflation data do not change our view that further monetary tightening is coming and that a more concerted effort to tighten fiscal policy will also be needed,” he said.

The Central Bank of Turkey raised interest rates eight times in a row from June 2023 to January 2024, with a total of 3,650 basis points of interest rate increases. It paused in February, signaling that the tightening cycle was over, and then raised rates again in March, citing a “worsening outlook for inflation” and saying it would “maintain a tight monetary stance until a substantial and sustained decline in the underlying trend in monthly inflation” is observed. “

Analysts pointed out that with Turkey’s local elections on March 31 over, it may be easier to push for tighter monetary policy. Turkey’s opposition won the country’s five largest cities and several rural areas in a nationwide municipal leadership vote on Sunday, pushing President Recep Tayyip Erdogan’s ruling Justice and Justice party The Development Party dealt a historic blow.

Political observers say the economic pain experienced by ordinary Turks and the sharp increase in the cost of living over the past few years are the main reasons for this result.

Erdogan maintains tight control over the central bank and has refused to raise interest rates in the past few years, calling them the “mother of all evil” and insists on rejecting economic orthodoxy that lowering interest rates is a way to cool inflation. This is despite falling foreign exchange reserves and a rapidly weakening economy. turkish lira, Over the past five years, it has depreciated about 82% against the US dollar.

The central bank’s policy shift came only after the appointment of new finance and central bank teams in May 2023, signaling that the bank will become more independent from the executive branch of the Turkish government. But some analysts say Erdogan’s party’s political defeat in local elections in March could make his future moves more unpredictable.

“The vote results add to political uncertainty and cast doubt on whether President Recep Erdogan will stick to his unpopular orthodoxy,” Bartosz Sawicki, market analyst at Conotoxia fintech, wrote in a note. policy.” But he added: “With no elections before 2028, another reform leading to a return to ultra-loose monetary policy seems unlikely.”