Turkish central bank raises interest rate for the first time since March 2021

The Board of the Central Bank of Turkey at today’s meeting decided to almost double the rate – from 8.5 to 15%, reported on the regulator’s website. The increase was the first since March 2021.

“The Board has decided to begin the process of tightening monetary policy in order to encourage the onset of deflation, reduce inflationary expectations and contain price volatility,” a press release following the meeting said.

The regulator promised to tighten the monetary policy until a noticeable improvement in the inflation forecast is achieved, noting that with its tightening, efficiency will also increase.

As Vedomosti wrote earlier, there was no consensus among analysts about what decision the Central Bank of Turkey would make today. Economists at Goldman Sachs had expected the weekly repo rate to rise to 40% from the current 8.5%, while Bank of America had forecast that the discount rate would rise to 25%. Deutsche Bank expected growth to 20% in June. Over the past year, the lira against the dollar in Forex has fallen by 36.4%. And after Erdogan’s victory in the elections since May 28, the Turkish currency has lost 19.8% and reached a new historical low at the level of 23.6 lira/$.

The Central Bank of Turkey, which has ceased to pursue an independent policy, has reduced the rate from 19% to the current 8.5% from 2021. Through low rates, the authorities sought to support lending and economic growth, but such a policy sharply devalued the lira and unleashed an inflationary spiral (last autumn, inflation exceeded 85%). Now annual inflation in Turkey reaches almost 40% with a target of 5%.

Earlier in June, Turkish President Recep Tayyip Erdogan appointed the head of the Central Bank of the country, Hafize Gaye Erkan, who previously worked at the American banks Goldman Sachs and First Republic. Erkan became the first woman to head the Central Bank of Turkey. Previously, this post was held by Sahap Kavcioglu, who, after his resignation, will head the department of banking regulation and supervision.