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22 Mar, 2024 11:38

Türkiye announces surprise interest rate hike 

The move has “stunned” economists who expected the central bank to keep rates unchanged
Türkiye announces surprise interest rate hike 

The Turkish central bank raised its benchmark interest rate by 500 basis points to 50% on Thursday, citing the need to tame skyrocketing inflation.

The hike came as a surprise, as most economists expected the central bank to keep rates unchanged. The monetary policy committee cited a “higher than expected” surge in the country’s year-on-year inflation last month.

Inflation soared to 67% in February, fueling concerns that Türkiye’s central bank may have to return to tightening.

“In response to the deterioration in the inflation outlook, the committee decided to raise the policy rate,” the regulator announced on Thursday. “Tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed.”

A Reuters poll released earlier this week forecast that the regulator would hold rates at 45% after it announced last month that it was pausing a series of dramatic rate hikes that it had implemented for eight successive months from last June to January.

The central bank’s move has “stunned the market,” according to Piotr Matys, senior FX analyst at In Touch Capital Markets in London. It’s the first interest rate hike under the new central bank governor, Fatih Karahan.

“Today’s decision is a very strong signal that Governor Karahan, who took over from [Hafize Gaye] Erkan when she unexpectedly resigned, is determined to bring staggeringly high inflation under control,” Matys told Reuters.

Thursday’s hike is further evidence that policymakers in Ankara are following through on their pledge to return to a more conventional approach to monetary policy compared to an earlier fixation on a growth-at-all-costs strategy, economists say.

After years of interest rate cuts, which helped trigger a currency crisis in late 2021 and sent inflation to a 24-year peak of 85.51% in October 2022, the Turkish central bank reverted to more traditional economic policies last year.

The lira rallied strongly following the move, reversing weeks of steady declines in the Turkish currency.