Turkey Holds Key Interest Rate at 45% to End 8-Month Hiking Cycle

Turkey’s central bank has decided to keep its key interest rate at 45% despite soaring inflation, signaling the end of an eight-month hiking cycle. This move was widely expected as the bank had previously indicated that it would not hike rates further this year, despite inflation reaching approximately 65%.

Inflation and Economic Challenges

Consumer prices in Turkey rose by 6.7% from December to January, the biggest monthly increase since August, according to the Turkish central bank. Year-on-year, prices increased by 64.8% in January. The country, with a population of 85 million, has been grappling with high inflation for some time.

Consistency in Monetary Policy

The decision to hold rates steady reflects the consistency of the newly appointed Turkish central bank governor, Fatih Karahan, with the strategy of his predecessor, Hafize Erkan. Karahan, who took office in early February, has maintained the central bank’s hawkish stance. The bank’s accompanying press statement indicated that there will be no easing of rates in the near future unless there is a sustained decline in inflation and convergence of inflation expectations.

Future Outlook

Analysts expect the current interest rate to remain unchanged for much of 2024, with inflation projected to halve by the end of the year. This suggests that monetary easing may still be on the cards. However, the baseline view is that interest rates will stay on hold throughout this year, with rate cuts potentially occurring early next year.

According to Liam Peach, a senior emerging markets economist at London-based Capital Economics, there is a possibility that the central bank may initiate an easing cycle before the end of the year, as many analysts are anticipating. Nevertheless, the prevailing expectation is that interest rates will remain unchanged for now.

Business Today will continue to monitor developments in Turkey’s monetary policy and provide updates on any significant changes.