Turkey’s interest rates remain steady
Turkey’s central bank held interest rates steady at 50% for a fifth straight month on Tuesday, as expected, and repeated that it remains vigilant to inflation risks even as it expects disinflation to gain pace.
The bank gave little clue about when it might begin cutting its policy rate, which analysts generally expect to happen late this year. But in a hint of the timing of pending easing, it said it is increasingly focused on the alignment of inflation expectations and pricing with its own projections for the disinflation path.
The bank last raised rates in March, by 500 basis points, capping an aggressive tightening cycle that began more than a year ago to rein in years of soaring prices. It has since held steady while vowing to hike more if the outlook worsens.
“Indicators for the third quarter suggest that domestic demand continues to slow down with a diminishing inflationary impact,” the bank added on Tuesday.
Annual inflation began dipping in June and touched 61.78% last month in what is expected to be a gradual, lasting decline. Earlier this month, the central bank maintained its inflation forecasts for end-2024 and end-2025 at 38% and 14% respectively, projecting it to fall to 9% by the end of 2026.
Economists predict it will reach about 42% by year-end. But underscoring the divergence in expectations, skeptical Turkish households see inflation remaining at 72% in a year’s time, according to a central bank survey released in June.
Since June last year, the central bank has raised its policy rate by a total 4,150 basis points (41.5%), reversing years of monetary stimulus supported by President Recep Tayyip Erdogan to boost economic growth despite soaring prices. The policy U-turn is clamping down hard on credit and economic growth. (Reuters)
