Turkiye’s central bank raises interest rate to 40% to tame rising inflation

RIYADH: For the 6th consecutive time, Turkiye’s central bank has raised the one-week repo rate to 40 percent, signaling the conclusion of its tightening cycle.  

In a bid to address persisting inflationary pressures and ensure sustained price stability, the Turkish Monetary Policy Committee announced in a statement on Thursday its decision to raise the interest rate from 35 percent to 40 percent. 

The move came as headline inflation experienced a slight decline in October. 

Based on the most recent data released by the Turkish Statistical Institute, Turkiye’s annual inflation decreased slightly to 61.36 percent in October, down from the nine-month peak of 61.53 percent recorded in September. 

During its October meeting, the central bank responded to these inflationary pressures by raising its policy interest rate, commonly referred to as the one-week repo auction rate, to 35 percent. 

Despite this positive development, the MPC highlighted in its statement concerns related to the existing level of domestic demand, the persistence of services inflation, and ongoing geopolitical risks that continue to exert upward pressure on inflation.

The committee also noted improvements in inflation expectations and pricing behavior, emphasizing that the current level of monetary tightness is approaching the necessary threshold to establish a disinflationary trajectory.  

“Accordingly, the pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time,” it said.

It said it is committed to maintaining monetary tightness as long as required to ensure sustained price stability and improve the micro – and macroprudential framework.  

While lending rates are considered to be in line with the targeted financial tightness, the committee anticipated that regulations promoting Turkish lira deposits, coupled with ongoing monetary tightening, will fortify the transmission mechanism and improve the funding composition of the banking system. 

Beyond policy rate adjustments, the MPC is set to employ quantitative tightening decisions to support the overall monetary policy stance.

Considering the cumulative and lagged effects of monetary tightening, the committee will determine policy decisions to create the necessary financial conditions for a sustained decline in the underlying inflation trend, aiming to reach the 5 percent inflation target in the medium term.