Turkish Central Bank Raises Policy Interest Rate to 35 Percent
The central bank's monetary policy committee said in a statement that it decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, anchor inflation expectations, and control the deterioration in pricing behavior.
In the third quarter, inflation readings were above expectations, said the statement.
The pass-through from tax regulations and cost pressures stemming from wages and exchange rates, which have been recently impactful, has been largely completed, the bank explained.
"The strong course of domestic demand, the stickiness of services inflation, and the deterioration in inflation expectations continue to put upward pressure on inflation," it added.
In addition, geopolitical developments have posed risks to the inflation outlook, said the bank.
However, foreign direct investment, stable external financing conditions, continued increase in foreign exchange reserves, and the increase in domestic and foreign demand for Turkish lira-denominated assets, etc., will significantly contribute to price stability, the statement noted.
The bank emphasized that its policy rate would be determined in a way that would create monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and achieve the medium-term inflation target of 5 percent.
The central bank embarked on a tightening cycle after Turkish President Recep Tayyip Erdogan appointed former bankers Hafize Gaye Erkan as central bank governor and Mehmet Simsek as the head of the Treasury and Finance Ministry in June. Both bankers were considered market-friendly figures.
The central bank aggressively raised interest rates from 8.5 percent to 30 percent during the June-September period to tame persistent inflation.
Yet, driven by the government's tax increase, rising reconstruction costs after the deadly earthquakes in February, and other factors, inflation picked up again in the past three months.
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