2023-08-24 17:55:08
He Central Bank of Türkiye has announced that it will apply all rate hikes necessary to tackle the inflation. The Central Bank’s Monetary Policy Committee, led by Governor Hafiz Gaye Erkan, has decided to raise the reference rate from 17.5% to 25%, the highest level since 2004, as reported by the institution. “The Committee decided to continue the monetary adjustment process in order to establish the disinflationary course as soon as possible, anchor inflation expectations and control the deterioration of price behavior,” the entity explained.
Turkish religious fundamentalism has its economic version in Gaye, who has assured that he will determine the level of the reference interest rate in such a way as to create the necessary monetary and financial conditions to ensure a decrease in the underlying trend of inflation and achieve inflation target of 5% in the medium term. This inflation target is especially ambitious, since last July, the interest rate Turkey YoY inflation stood at 47.83%compared to 38.21% in June, thus putting an end to a sequence of eight consecutive falls in the price index and substantially moving away from the medium-term stability goal.
Since Hafize Gaye Erkan took office as Governor of the Central Bank of Turkey last June, the institution has undertaken a radical turn towards orthodoxy in its monetary policy with three consecutive increases in the rate that have raised the price of money by 1,650 basis points, from 8.50% before the appointment to the current 25%. Despite the fact that a large part of the inflationary pressures are exogenous, basically due to the war in Ukraine and the trade difficulties with China, Gaye believes that the rapid rise in interest rates will have positive consequences in the medium term.
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Los currency markets have in principle agreed with economic orthodoxy. The price of Turkish banks, as well as the currency of the Ottoman country against the main currencies, responded with strong rises to the decision of the Central Bank of Turkey to suddenly raise 750 basis points.
The BIST index for the banking sector of the Istanbul Stock Exchange registered a rise of 7.53% ahead of the last section of the session, after having reached a revaluation of almost 10%. Among the components of the Istanbul bank selective, the increases of Garanti, a subsidiary of BBVA, stood out, with an advance of more than 8% in the day, while Yapi Kredi rose almost 7.79%; Akbank, 7.66%; and Turkiye Is Bankasi, 6.49%. Also, in the foreign exchange market, the Turkish currency strengthened against the dollar, which was exchanged for 25,284 liras, its lowest exchange rate since June. Analysts fear that raising rates so quickly could destabilize indebted families and have consequences in particularly sensitive sectors of activity due to their high indebtedness.
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