Türkiye maintains monetary tightening, raises interest rate to new heights

Bank said tightening measures nearing end of cycle
Türkiye maintains monetary tightening, raises interest rate to new heights
End of strict monetary tightening cycle in the horizon

As expected, the Central Bank of Türkiye (TCMB) raised its main interest rate by 250 basis points to 42.5 percent. The Bank noted that the strict monetary tightening cycle will end “as soon as possible.”

Since June, TCMB has opted to increase the interest rates on repo operations by 3,400 basis points. This decision was made following the appointment of Hafize Gaye Erkan as the head of the central bank by President Recep Tayyip Erdogan. Erkan, who has prior experience as a banker on Wall Street, was chosen to facilitate a significant transition towards more conventional policies.

The Central Bank of Türkiye has resorted to raising interest by 500 basis points in each of the past three months. In contrast, the bank stated last month that the tightening would soon end.

After halving the pace, TCMB noted that monetary tightening was very close to the required level to lay the groundwork for a declining inflation trajectory.

Read more: Türkiye’s Central Bank urges foreign investors: Invest in Turkish lira bonds for high yields


Additionally, the Bank tipped inflation to rise from nearly 62 percent last month to between 70 and 75 percent in May. Forecasts of a lower inflation rate slowed to about 36 percent by the end of next year when tightening calms prices.

Official data released this month showed a high annual inflation rate for consumers’ prices in Türkiye. Inflation stood at 61.98 percent in November. It was driven by rising food and transport prices, slightly below expectations.

According to data from the Turkish Statistical Institute (TURKSTAT), inflation in the country recorded 3.28 percent month-on-month.

Moreover, a recent Reuters poll forecasted annual inflation to rise to 63 percent in November, with inflation projected to reach 67 percent by the end of the current year. In October, annual inflation fell for the first time in three months. The inflation rate at that time posted 61.36 percent.

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