Turkey holds interest rate at 50% despite inflation risks 

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Turkey’s central bank maintained its benchmark interest rate at 50 percent and will retain a tight monetary stance until inflation is tamed.

The last 500 basis points rise to the benchmark rate was announced in March following a deteriorating inflation outlook.

The rate has been hiked by 4,150 basis points since June 2023 to ease inflation and stimulate economic growth.

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“The decline in the underlying trend of monthly inflation registered a temporary pause in May,” the bank said in a statement.  However, inflation expectations, geopolitical risks, and food prices keep inflationary pressures alive.  

The bank stated that its monetary policy stance will be tightened if a significant and persistent deterioration in inflation is foreseen.

Additional macroprudential measures will support the monetary transmission mechanism in case of unanticipated developments in credit and deposit markets, it added.  

The central bank is aiming at disinflation in the second half of the year through moderation in domestic demand, real appreciation in the Turkish lira, and improvement in inflation expectations.

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The government is expecting to reach the 5 percent inflation target in the medium term by making necessary monetary and financial decisions.

May’s business confidence report, released by statistics agency Turkstat this week, showed sentiment in the retail sector at its lowest level for more than two years. It fell by 3 percent, from 115.5 points to 111.7.

Despite the drop, sentiment remains well above the 100-point dividing line between an optimistic and a pessimistic outlook. 

Turkey’s central bank has projected year-end inflation of 38 percent, down from May’s 75 percent.

In mid-June ratings agency Fitch forecast Turkey’s economy will expand by 3.5 percent in 2024, up from its earlier estimate of 2.8 percent.