ANKARA, Turkey (AP) — Turkey’s central bank raised its policy interest rate by 2.5 percentage points on Thursday as part of a fight against high inflation that has left many households struggling to pay rent and buy essentials.
The bank’s Monetary Policy Committee raised the policy interest rate to 42.5%, marking the seventh consecutive interest rate hike to curb inflation, which rose to 61.98% last month.
However, the bank indicated that the interest rate hike that raised borrowing costs from 8.5% to the current 42.5% may end soon.
“The Committee intends to complete the tightening cycle as quickly as possible,” the committee said. “Monetary policy will remain tight for as long as necessary to ensure sustained price stability.”
The series of hikes comes after President Recep Tayyip Erdogan, who has long supported the unorthodox policy of cutting interest rates to fight inflation, reversed course and appointed a new economic team after being re-elected in May.
The team includes Mehmet Simsek, a former Merrill Lynch banker who served as finance minister until 2018, and Hafizeh Gaye Erkan, a former US-based banking executive who took over as central bank governor in June. ing.
Earlier, President Recep Tayyip Erdogan had fired central bank governors who resisted his interest rate cuts, which economists said went against traditional economic thinking, caused prices to soar and triggered a currency crisis.
In contrast, central banks around the world have rapidly raised interest rates, targeting a spike in consumer prices linked to the recovery from the COVID-19 pandemic and Russia’s subsequent war in Ukraine.
“There is still a lot of work to do to contain inflation, but bond markets are optimistic that Turkey is on the right track,” said Kagli Kutman, Turkey market specialist at KNG Securities. “Turkish government bonds have been the best performer among major economies over the past month.”
Bartosz Sawicki, a market analyst at Konotoxia FinTech, said the central bank was likely to complete the rate hike by 45% next month.
“Therefore, (the central bank) plans to halt tightening before the local elections in March,” he said in an email.
