Turkey’s Central Bank Holds Key Interest Rate at 45% Amid Soaring Inflation: Analysts Predict Monetary Easing in 2024

Turkey’s central bank opted to maintain its key interest rate at 45% on Thursday, despite persistent inflation following a string of eight consecutive months of rate hikes.

The decision was in line with expectations, as the bank had previously hinted in January that the 250-basis-point increases would conclude for the year, notwithstanding the current inflation rate hovering around 65%.

According to data from the Turkish central bank, consumer prices surged by 6.7% last month compared to December, marking the largest monthly leap since August. Year-on-year, prices surged by 64.8% in January alone.

Bank of Turkey
Analysts anticipate potential monetary easing in 2024 as inflation is expected to halve.

Since May 2023, Turkey’s key interest rate has climbed by a cumulative 3,650 basis points. The recent decision to maintain rates, rather than decrease them, underscores continuity with the approach of the newly appointed Turkish central bank governor, Fatih Karahan, following the strategy of his predecessor, Hafiz Erkan. Karahan assumed office in early February.

Analysts interpreted the central bank’s accompanying press statement as hawkish, suggesting no imminent relaxation of rates. “The Committee assesses that the current level of the policy 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 projected forecast range,” the bank’s statement read.

“Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation outlook is anticipated.” Economists anticipate the current interest rate to remain unchanged for much of 2024, with inflation expected to roughly halve by year-end, potentially paving the way for monetary easing.

Inflation surges to 65%
Inflation surges to 65%, marking the highest jump in consumer prices since August.

“An extended interest rate pause is likely in our view over the coming months. With inflation likely to end the year at 30-35% (broadly in line with the CBRT’s forecast of 36%), there is still a possibility that the central bank will start an easing cycle before the end of the year, which many analysts are expecting,” noted Liam Peach, senior emerging markets economist at London-based Capital Economics, in a note on Thursday.

“But our baseline view remains that interest rates will stay on hold throughout this year and that rate cuts won’t arrive until early next year.”

Sajda Parveen
Sajda Parveen
Sajda Praveen is a market expert. She has over 6 years of experience in the field and she shares her expertise with readers. You can reach out to her at [email protected]
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