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Turkey says interest rate hikes ‘cooled’ inflation

Turkey inflation Reuters/Central Bank of Turkey handout
Central bank chief Hafize Gaye Erkan said achieving disinflation is a measure of success

Turkey’s interest rate hikes have helped lower inflation expectations and improved visibility on prices, attracting Western fund inflows that have boosted depleted FX reserves, central bank governor Hafize Gaye Erkan said on Wednesday.

Interest in Turkish lira deposit accounts and assets has increased since June, Erkan told the Istanbul Chamber of Industry, after years of currency depreciation and double-digit inflation forced Turks to turn to hard currencies to protect their savings.

Erkan, echoing the message by the central bank’s monetary policy committee last week, also said its tightening steps would be completed soon.

Erkan listed a series of long-term benefits of the aggressive rate hikes, to 40 percent from 8.5 percent, since she took the bank’s reins in June and began orchestrating an abrupt U-turn to more orthodox economic policies.

She said monthly inflation continued to slow in November based on preliminary readings, adding that the lira currency’s more stable foreign exchange rates will also help cool price rises.

Annual inflation is running above 61 percent and is expected to rise through May of next year, before cooling. The lira is depreciating slowly but steadily, touching new lows nearly daily.

Meanwhile, some foreign investors including European giant Amundi have begun tentatively returning to Turkish assets, Reuters reported, after a years-long exodus due to unorthodox and often erratic policymaking under President Tayyip Erdogan.