Turkey continues to hike policy rates to tame inflation

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Turkey’s central bank increased its key policy rate by 250 basis points to 42.5 percent to combat inflation.

Headline inflation edged up in November, but remains in line with the outlook presented in the recent inflation report, it added.

The annual inflation rate surged to 61.98 percent in November, its highest level this year, data released by the Turkish Statistical Institute showed.

“The existing level of domestic demand, stickiness in services inflation, and geopolitical risks keep inflation pressures alive,” the central bank said.

Moreover, the improvement in external financing conditions, continued increase in forex reserves, and accelerated increase in domestic and foreign demand for Turkish lira contributed significantly to the effectiveness of monetary policy.

The central bank has lifted its one-week repo rate by 3,400 basis points since June, following the appointment of former Wall Street banker Hafize Gaye Erkan as its governor.

“The committee anticipates completing the tightening cycle as soon as possible,” the apex bank said.

However, the monetary tightness will be maintained “as long as needed to ensure sustained price stability and establish a disinflation course.

Turkey’s central bank expects inflation to rise to 70-75 percent in May, before dipping to about 36 percent by the end of next year as tightening cools prices.

Earlier this month, the official statistics data showed Turkey’s economy grew by 5.9 percent in the third quarter of 2023 – the highest since the second quarter of last year – driven by strong household spending.

At current prices, gross domestic product reached 7.68 trillion liras ($295.82 billion).