Turkey: Central Bank hikes interest rate for second consecutive time in December
At its 24 December meeting, the Monetary Policy Committee (MPC) of the Central Bank of Turkey raised the one-week repo rate from 15.00% to 17.00%—a larger increase than expected by market analysts. The decision marked the second consecutive rate hike since Naci Agbal was appointed as governor in November.
The decision was driven by a worsening inflation outlook on the back of strengthening domestic demand through high credit growth, which widens the current account deficit, while ongoing currency weakness, higher food and commodity prices, and deteriorating inflation expectations have adversely affected price-setting behavior. As such, the Bank opted to tighten monetary policy to “eliminate risks to the inflation outlook, contain inflation expectations and restore the disinflation process as soon as possible”. Regarding the economy, the MPC noted that the partial recovery that began in the third quarter had continued; however, it also stated that the reintroduction of restrictions created uncertainty over the short-term outlook for economic activity.
The Bank maintained a markedly hawkish tone in the press release, stating that “in the forthcoming period, tightness of monetary policy stance will be decisively sustained until strong indicators point to a permanent fall in inflation in line with the targets and to price stability”. As such, further rate hikes are expected if inflation remains elevated.
The next monetary policy meeting is scheduled for 21 January.