Turkey Takes Drastic Measures To Halt Inflation

The central bank of Turkey on December 21 raised its key interest rate by 2.5 points as part of the effort to address the country’s high inflation, the Associated Press reported.

The Monetary Policy Committee increased its benchmark rate to 42.5 percent, the central bank’s seventh rate hike in a row to dampen inflation that in November had risen to 61.98 percent.

At the same time, the central bank indicated that the rate hikes, which brought interest rates from 8.5 percent to 42.5 percent, could be ending soon.

The committee said monetary tightening would remain “as long as needed to ensure sustained price stability” but expected that the “tightening cycle” would be completed “as soon as possible.”

Following his reelection in May, Turkish President Recep Tayyip Erdogan, who had been a longtime proponent of cutting interest rates to fight inflation, reversed course and appointed a new economic team, that includes Mehmet Simsek, formerly of Merrill Lynch, as finance minister and former US bank executive Hafize Gaye Erkan as governor of the central bank.

Before reversing course, Erdogan had fired central bank governors who resisted his policy of cutting interest rates, a policy that economists believe caused prices in Turkey to skyrocket and triggered the country’s currency crisis.

Turkish market specialist Cagri Kutman of KNG Securities told the Associated Press that while there is still more to be done to tame inflation in the country, “the bond market is optimistic that Turkey is on the right track.”

According to Kutman, over the past month, Turkish bonds have been one of the strongest-performing bonds of any major economy.

Market analyst Bartosz Sawicki from Conotoxia fintech told the Associated Press that the central bank of Turkey would likely end its interest rate hikes in January at 45 percent, bringing an end to monetary tightening before the country’s local elections in March.