Turkey’s Central Bank Holds Key Interest Rate Steady at 50%

Reuters

Turkey’s central bank maintained its key interest rate at 50% for the sixth consecutive month on September 19, aligning with expectations. The bank emphasized its vigilance regarding inflation risks but omitted any mention of potential tightening.

The bank stated that it will utilize monetary policy tools effectively if a significant and sustained decline in inflation is anticipated. This marks a shift from previous statements, where the bank indicated that it would tighten its policy stance if such a decline in inflation occurred.

The Turkish lira remained relatively stable, trading at 34.02 against the US dollar following the decision.

Interest Rate History

The last time the bank increased its policy rate was in March, when it rose by 500 basis points, concluding an aggressive tightening cycle initiated in June last year to combat rising inflation.

Since then, the bank has maintained the repo rate, promising to tighten further if the outlook deteriorates. A recent Reuters poll revealed that analysts expect the bank to cut its first rate around November.

Analyst Expectations

All 16 respondents to the poll anticipated the bank would leave the policy rate unchanged this week. The median estimate suggests the rate will decrease to 47% by the end of the year.

The poll also indicated that the rate could be reduced as early as October or as late as next year, with a predicted decrease of over 20 percentage points by the end of 2025.

Inflation Outlook

Annual inflation in Turkey decreased below 52% in August, down from a peak of 75% in May. The government forecasts that inflation will fall below 42% by the end of the year and reach 17.5% by the end of 2025.

The central bank has increased its policy rate by 4,150 basis points since June 2023, reversing years of monetary stimulus supported by President Tayyip Erdogan to boost economic growth.