Turkish Central Bank Delivers Massive 750 Bps Rate Hike

(RTTNews) - Turkey's central bank raised its benchmark rate sharply, by 750 basis points on Thursday, and hinted at more tightening to put a lid on inflation.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey, or CBRT, headed by Governor Hafize Gaye Erkan, decided to hike the policy rate to 25.00 percent from 17.50 percent.

"The Committee decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior," the bank said in the statement.

"Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved," the bank added.

Given the monetary tightening stance, the bank anticipates that disinflation will be established in 2024.

In July, consumer price inflation had accelerated to 47.83 percent from 38.21 percent in June. Recently, the bank had raised its inflation forecast for the year-end to 58 percent from around 22 percent.

Bringing inflation back to single digits will require a prolonged period of positive real rates, Capital Economics' economist Liam Peach said. There is a much larger likelihood that interest rates will peak above 30 percent, the economist noted.

"If this materialises, there's scope for a lot of the downward pressure on the lira to ease," Peach added.