Turkish flag over DenizBank building. Türkiye is expected to go to the polls on Sunday.
Ismail Ferdous | Bloomberg | Getty Images
Turkey's central bank kept its key interest rate on Thursday at 45% despite rising inflation after eight straight months of rises.
The move was widely expected as the bank indicated in January that its 250 basis point increases would be its last for the year, even though inflation now stands at around 65%.
Consumer prices in the country of 85 million people jumped last month by 6.7% compared to December – their biggest monthly jump since August – according to Turkish Central Bank figures. It rose 64.8% year-on-year in January.
Turkey's key interest rate has risen by a cumulative 3,650 basis points since May 2023. The recent decision to maintain interest rates, rather than cut them, indicates that Turkey's newly appointed Central Bank Governor Fatih Karahan is consistent with the strategy of his predecessor Hafez Erkan. Karahan took office in early February.
Analysts saw the accompanying press release from the central bank as hawkish and indicating no easing of interest rates in the near future.
“The committee estimates that the current level of the interest rate will be maintained until there is a significant and sustained decline in the underlying trend of monthly inflation and until inflation expectations converge to the expected range,” the bank statement said. “Monetary policy stance will be tightened if a significant and sustained deterioration in inflation expectations is expected.”
Economists expect the current interest rate to hold steady through most of 2024, and see inflation nearly halving by the end of the year – meaning monetary easing may still be on the table.
“Interest rates are likely to be on hold for an extended period in our view over the coming months. With headline inflation likely to end at 30-35% (broadly in line with the Turkish Central Bank’s forecast of 36%), there remains the possibility that the bank “It will begin an easing cycle before the end of the year, which is what many analysts expect,” Liam Beach, chief emerging markets economist at London-based Capital Economics, wrote in a note on Thursday.
“But our basic view remains that interest rates will remain where they are throughout this year and that rate cuts will not arrive until early next year.”
