Over the past few years, Turkey has battled with an economic challenge as it faces rising inflation, due to the loose monetary policy of the Ankara government. To counteract inflation, the central bank recently implemented a bold move by increasing interest rates again by 250 basis points, bringing rates to 45% as inflation reaches 65%. Since the May 2023 elections, interest rates have witnessed eight consecutive hikes. This is the result of a new economic team added to the central bank which has increased interest rates from 8.5% to 45% to try and curve inflation pressures. Furthermore, the Turkish Lira has experienced a substantial drop as it is down 38% against the American dollar. The Central Bank of the Republic of Turkey has signaled that this might be the end of the tightening cycle. Analysts speculate that this decision may be influenced by the upcoming local elections in March, as a potential turning point for the country’s economic stance.
Despite the aggressive tightening cycle, skepticism remains strong amongst many analysts. Bartosz Sawicki a market analyst at Conotoxia Fintech believes that the 3650 basis point increase is not enough to curb the effect of inflation due to the combination of a loose monetary policy, negative real interest rates, and the depreciation of the Lira. Bartosz Sawicki and his colleagues at Contoxia Fintech believe that inflation will rise to 75% by May and new measures will be needed to combat Turkey’s inflation crisis.
https://www.cnbc.com/2024/01/25/turkey-hikes-interest-rate-again-to-45percent-as-inflation-remains-stubbornly-high.html
4 comments:
How have global banks that operate here reacted to this rise in rates?
As we talked about in NIBC, there definitely needs to be a tightening of the monetary policy rather then a loose policy. 75% inflation is incredible, but is not that surprising in today's global market climate.
It's interesting that the economic team continued/continues to raise interest rates despite the lack of results. And not to mention I bet their citizens aren't too happy with those interest rates. Is there some reason why Turkey hasn't changed their monetary policy?
Always interesting to see monetary policy clash with social policy. While decreasing rate hikes most likely won't result in the goal of curbing inflation, maybe a break to stabilize the population is needed. Hopefully, the correct choice is made for the right reasons, and not just because of the voting cycle.
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