FX.co ★ Turkey's Central Bank Raises Key Rate Unexpectedly To 50.0%

On Thursday, Turkey's central bank announced an unexpected increase in the key interest rate. This action was taken with the intention of reducing inflation and bringing it back towards their target of 5% in the medium term.

The Central Bank of the Republic of Turkey's Monetary Policy Committee, presided over by the newly appointed Governor Yasar Fatih Karahan, decided to increase the policy rate from 45.0% to 50.0%. This move came as a surprise to economists, who were expecting a halt in the hike cycle.

According to the central bank, they will continue to uphold a rigid monetary stance until there is a significant and long-term decrease in the habitual monthly inflation trend, as well as until inflation anticipations align with the projected forecast range.

Latest statistics show that in February, Turkey's consumer price inflation rose to 67.07%, a 15-month peak, up from 64.86% in January. This figure considerably exceeds the 5.0% goal.

If a severe and lasting increase in inflation is predicted, the bank said they will implement stricter monetary policies accordingly.

The Monetary Policy Committee maintains that a stringent monetary attitude will decrease the monthly inflation trend via moderation in domestic demand, a real increase in the Turkish lira, improvement in inflation expectations, and disinflation expected in the second half of 2024.