TÜRKIYE’S CENTRAL BANK SHOCKS MARKETS WITH UNEXPECTED RATE HIKE

Annual inflation stood at nearly 70 percent in February, the highest level in 15 months

In an unexpected move, the Central Bank of Türkiye responded to higher-than-expected inflation by announcing a significant increase in its policy rate – from 45 percent to 50 percent. The bank stated that while imports of consumption goods and gold had slowed, indicating an improvement in the current account balance, other indicators suggested that domestic demand remained strong. Factors such as stickiness in services inflation, geopolitical risks and food prices were cited as contributing to ongoing inflation pressures. The decision to raise interest rates followed a pause in the previous month, which had led market analysts to anticipate no change. The bank explained that the move was prompted by a deterioration in the inflation outlook. Inflation in Türkiye remains high, with core consumer prices rising by 72.89 percent in February compared to the same month in 2023. Annual inflation stood at nearly 70 percent in February, the highest level in 15 months.

The central bank highlighted that it would maintain a tight monetary stance until a significant and sustained decline in monthly inflation and convergence of inflation expectations to the projected forecast range were observed.

It also expects disinflation in the second half of 2024.

This interest rate hike marks the first under the leadership of the new central bank governor, Fatih Karahan, who was appointed by President Recep Tayyip Erdoğan in February, replacing Hafize Gaye Erkan.