Turkey hikes rate to 45% to maintain disinflation

Reuters

Turkey’s central bank has raised its benchmark one-week policy rate by another 250 basis points to 45 percent, continuing with its aggressive monetary tightening policy.

“The monetary tightness required to establish the disinflation course is achieved and that this level will be maintained as long as needed,” the central bank governor Hafize Gaye Erkan said in a statement.

She said that the current level of the policy rate will be maintained until there is a significant decline in monthly inflation rate. 

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However, the monetary policy committee will reassess the monetary policy if “notable and persistent” risks to the inflation outlook emerge.

The latest rate increase is the eighth since President Recep Tayyip Erdoğan appointed a new economic team signalling the change from previous orthodox policies.

An earlier survey by state-owned Anadolu Agency estimated that the central bank would raise its policy rate by 2.5 percentage points.

The central bank lifted its key rate by 3,400 basis points (bps) since June 2023, including a hike of 250 bps to 42.5 percent in December 2023.

Last month, Turkey’s treasury and finance minister, Mehmet Simsek, said that he hopes annual inflation will drop to single digits by the end of 2026.

Inflation is currently at 65 percent and is expected to drop to 36 percent next year and 14 percent in 2025, he said in his speech at the Turkuvaz Media Center in Istanbul.