Central bank increases key interest rate to 40 percent

2023-11-23 16:15:17

The Turkish central bank raised the key interest rate for one-week loans by 5 points to 40 percent on Thursday, exceeding analysts’ expectations by twice. However, it also signaled the imminent end of the steep rate hike from 8.5 to 40 percent. A new economic team started after the elections in June.

65 percent inflation expected

Andreas Mihm

Economic correspondent for Austria, East Central and Southeast Europe and Turkey based in Vienna.

With the tightening of monetary policy, we are close to the level that is necessary to weaken inflation from the recent 61.4 percent. “Accordingly, the pace of monetary policy tightening will slow down and the tightening cycle will be completed in a short period of time,” said the Monetary Policy Committee under Governor Hafize Gaye Erkan. Monetary policy tightening will be maintained for as long as necessary to ensure sustainable price stability.

Andreas Mihm, Gaziantep Published/Updated: Recommendations: 3 Friederike Böge Published/Updated: , Recommendations: 3 Andreas Mihm, Gaziantep Published/Updated: Recommendations: 83

The central bank expects an inflation rate of 65 percent at the end of 2023. Analysts point out that Turkey’s falling credit demand and slowing import spending could be seen as a success of the new monetary policy. The tighter monetary policy stance is the opposite of the financial and monetary policy pursued by President Recep Tayyip Erdoğan until May.

While the cost of credit default insurance on Turkish bonds has fallen sharply since then, the lira has not received any confidence boost. She had devalued further. The surprising interest rate decision on Thursday caused a brief appreciation to rates of around 31.40 lira per euro and 28.80 lira per dollar.