An electronic board displays exchange rate information at a currency exchange bureau in Istanbul, Turkey, Monday, Aug. 29, 2022.
Nicole Tung | Bloomberg | Getty Images
Turkey’s central bank cut interest rates by 150 basis points to 9% on Thursday and decided to end its cycle of monetary policy easing, citing rising inflation risks.
CBRT [Central Bank of the Republic of Turkey] President Recep Tayyip Erdogan has been under constant pressure to continue cutting rates despite rising inflation, which hit 85.5% year-on-year in October as food and energy prices continued to rise.
“Given the rising risks to global demand, the committee assessed that the current policy rate is adequate and decided to end the rate cut cycle that began in August,” the central bank said in a statement.
Erdogan has continued to insist that raising interest rates in line with central banks around the world will hurt the Turkish economy, an insistence economists suggest has significantly devalued the lira currency and fueled inflation. The President has repeatedly stated his aim to bring the country’s interest rates down to single digits by the end of this year.
“While the negative consequences of supply constraints in some sectors, especially basic foodstuffs, have been alleviated by strategic solutions facilitated by Turkey, the increase in producer and consumer prices continues internationally,” the central bank said.
“The effects of higher global inflation on inflation expectations and international financial markets are being closely monitored. Additionally, central banks in advanced economies are stressing that higher energy prices, imbalances between supply and demand may lead to higher inflation lasting longer than previously expected. . . , and tightening in labor markets,” it added.
The CBRT is reviewing its policy framework with a focus on the “liberalisation” of the financial system and said in its report on Thursday that it will “continue to use all available tools” within the framework of this strategy until “stronger indicators point to”. Low inflation and the medium-term 5 percent target is achieved.”
“Stability in the general price level will promote macroeconomic stability and financial stability through a reduction in the country’s risk premium, continued reversal of currency substitution and an upward trend in foreign exchange reserves and a sustained reduction in financial costs,” CBRT said.
“This will create a viable foundation for investment, production and employment to continue growing in a healthy and sustainable manner.”
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