An electronic board shows exchange rate information at a bureau de change in Istanbul, Turkey, on Monday, August 29, 2022.
Nicole Tung | Bloomberg | Getty Images
Turkey’s central bank cut interest rates by 150 basis points to 9% on Thursday and decided to end the cycle of monetary policy easing, citing increased inflation risks.
The CBRT [Central Bank of the Republic of Turkey] is under continued pressure from President Recep Tayyip Erdogan to continue cutting rates despite high inflation, which reached 85.5% year-on-year in October, while food and energy prices continued to rise.
“Given rising risks to global demand, the Committee assessed that current policy rates are adequate and decided to end the cycle of interest rate cuts that began in August,” the central bank said in a statement.
Erdogan has continued to insist that raising interest rates, in agreement with central banks around the world, would hurt the Turkish economy. The president has repeatedly stated his goal of bringing the country’s interest rates back to single digits by the end of this year.
“While the negative impact of supply constraints in some sectors, especially staple food, has been alleviated by Türkiye’s strategic solutions, the upward trend in producer and consumer prices continues on an international scale,” the central bank said.
“The effects of high global inflation on inflation expectations and international financial markets are being closely monitored. In addition, central banks in advanced economies are stressing that the rise in inflation may continue longer than previously expected due to high energy prices, supply and demand imbalances and rigidities in the labor markets,” it added.
The CBRT is undergoing a review of its policy framework, focusing on the “liraization” of its financial system and said in its report Thursday that it would “continue to use all available tools” under this strategy until “strong indicators point to a permanent fall in inflation and the medium-term target of 5 percent is achieved.”
“Stability in the general price level will promote macroeconomic stability and financial stability through the decline of the country risk premium, the continuation of the reversal of currency substitution and the upward trend of foreign exchange reserves, and the sustained decline in borrowing costs,” said the CBRT.
“This would create a viable base for investment, production and employment to continue growing in a healthy and sustainable way.”
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