Turkey’s Central Bank has decided to maintain its policy rate at 8.5%, as announced by the bank’s Monetary Policy Committee. The decision was made despite the rising inflation in Turkey and the impact of the recent earthquake in February. The committee believes that the current monetary policy stance is sufficient to support the country’s necessary recovery efforts while maintaining price and financial stability.
Inflation in Turkey has been on the rise for over a year, though the most recent data suggests that it has eased slightly. Annual inflation was at 50.51% in March, down from 55.2% in February. Traditionally, higher interest rates are used to combat inflation, but President Recep Tayyip Erdogan has long believed that lower interest rates lead to lower inflation.
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Under Erdogan’s influence, the Central Bank has been cutting interest rates since last October, even with the rampant inflation at the time. The bank cut rates again in February, from 9% to the current rate of 8.5%, and left them unchanged in March.
The Central Bank’s interest rate has become a crucial issue in Turkey’s upcoming elections on May 14. Erdogan has pledged that both inflation and interest rates will continue to decrease as long as he remains in power. However, Bloomberg reports that the bank has been selling off its gold reserves to meet the surging local demand, as people turn to gold as a hedge against inflation.
Despite the uncertainty surrounding Turkey’s economic situation, the Central Bank’s decision to maintain its policy rate suggests a cautious approach toward balancing the need for economic growth with the need to control inflation.
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