Turkey holds interest rate steady for fifth straight month

Turkey’s central bank held interest rates steady at 50 percent for a fifth consecutive month despite geopolitical developments keeping inflationary risks alive.

Indicators for the third quarter suggest that domestic demand will continue to slow down with a diminishing inflationary impact, the central bank’s monetary policy committee said in a statement. 

The disinflation process will gain strength amid a tight monetary stance thanks to real appreciation in the Turkish lira, it added.

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The last 500 basis-point rise to the benchmark rate was announced in March following a deteriorating inflation outlook. The rate has been increased by 4,150 basis points since June 2023 to ease inflation and stimulate economic growth.

The central bank has put its inflation forecasts for 2024 and 2025 at 38 percent and 14 percent respectively, expecting it to decline to 9 percent by the end of 2026.  

In February, finance minister Mehmet Şimşek said Turkey’s measures to curb inflation will prove effective, and it would decline in the second half of this year.

The medium-term programme, launched in September 2023, intends to achieve price stability and single-digit inflation, he said.

Global rating agency Fitch upgraded Turkey’s long-term foreign currency issuer default rating to “B+” from “B” in March, driven by greater-than-expected monetary policy tightening to control inflation.