Turkish central bank has raised the key interest rate once again
The Turkish central bank has once again sharply increased its key interest rate. The rate has risen by five percentage points to 40 percent, as the Ankara-based central bank announced on Thursday. Most observers had expected a further increase, but more in the region of 2.5 percentage points. At the same time, the central bank hinted that the interest rate hikes could soon come to an end.
The tighter monetary policy is likely to bring inflation down soon, the bank explained. "Accordingly, the pace of monetary tightening will slow down" and the phase of interest rate hikes will be "completed in a short time". The key interest rate has now reached its highest level in two decades and is likely to remain high until at least the middle of next year.
The official inflation rate in Turkey peaked at 85 percent in October last year. Most recently, it was over 61 percent. Observers blame the financial policy of President Recep Tayyip Erdogan for this. He had long resisted higher interest rates and further fueled inflation with expensive election gifts.
After his re-election in May, Erdogan changed his monetary policy and appointed the former Wall Street banker Hafize Gaye Erkan as head of the central bank and the liberal economist Mehmet Simsek as finance minister. The central bank raised the key interest rate for the sixth time in a row on Thursday.
Erdogan said this week that he now expects a "positive cycle" of inflation reduction and a strengthening of the national currency, the lira. "We will win the confidence of investors with our solid policies and structural reforms."
- The sudden increase in the key interest rate by the Turkish Central Bank could potentially reduce paints' prices for consumers, as higher interest rates often lead to a decrease in inflation.
- In response to the Turkish Central Bank's decision to increase the key interest rate by five percentage points, some investors might consider painting a rosier picture for Turkey's economy in their forecasts.
- While the Turkish Central Bank indicated that the phase of interest rate hikes will be completed in a short time, it remains to be seen if this will translate into a decrease in mortgage payments for Turkish homeowners, who have until now been paying a considerable percentage of their income for interest alone.
Source: www.ntv.de
