Turkey’s central bank hikes interest rate to 40% 

Reuters/Cagla Gurdogan

Turkey’s central bank has increased its policy rate by 500 basis points to 40 percent and said the pace of monetary tightening will slow down shortly.

“The committee assessed that the current level of monetary tightness is significantly close to the level required to establish the disinflation course,” the bank said in a statement following its monetary policy committee meeting.

“The pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time. The monetary tightness will be maintained as long as needed to ensure sustained price stability,” it added.

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Since June, the central bank has raised its one-week repo rate by 3,150 basis points (bps).

In a Reuters poll, most economists predicted a 250 bps hike, while only three forecast a 500-point hike.

President Tayyip Erdogan appointed Wall Street banker Hafize Gaye Erkan as central bank chief following his re-election in May. Erkan has led a policy U-turn, increasing rates to control rising inflation.

“A final 250 bp hike in December now looks likely,” Liam Peach at Capital Economics told Reuters.

“The past month has brought further signs that Turkey’s economy is rebalancing in response to the policy U-turn in May.”

Inflation stood at 61.36 percent in October and is expected to continue rising and peak in May 2024 at around 70-75 percent, the central bank said recently.

“Indicators of inflation and underlying trend of inflation will be closely monitored and the committee will continue to decisively use all the tools to achieve price stability,” the central bank said.