Turkey’s central bank on Thursday raised its key interest rate by another 2.50 percentage points to 45%, in line with analysts’ expectations, CNBC reported. The increase in the base interest rate is taking place against the background of the struggle of Turkey’s monetary policy with double-digit inflation.

Inflation in Turkey rose to 64.8% year-on-year in December from 62% in November, and the country’s currency, the lira, hit a new record low against the US dollar in early January, surpassing 30 to the dollar for the first time. .

Analysts predict that this will be the last increase for some time, especially since local elections will be held in March.

“Encouragingly, the reports were relatively conservative and suggest that policymakers recognize the need to keep interest rates high for an extended period to successfully slow inflation down to single digits,” said Liam Peach, senior emerging markets economist at Capital Economics in London. , in a note to investors.

He also noted that “our baseline scenario remains that the central bank will keep interest rates unchanged throughout this year.”

The Central Bank of the Republic of Turkey said it was likely the end of the tightening cycle, announcing its decision: “The monetary policy tightening necessary to set the deflation rate has been reached… The current level of the monetary policy interest rate will be maintained until then , until there is a significant decline in the underlying monthly inflation trend and until inflation expectations move closer to the forecast range.”

The central bank’s move is the latest in a series of interest rate hikes — eight in a row since the May 2023 election — that have been painful for Turks as the country grapples with a much weaker currency and a rising cost of living.

The high inflation of the last few years is mainly the result of the stubbornly soft monetary policy of the government in Ankara.

The pound has fallen 38% against the dollar over the past year and has lost more than 80% of its value against the dollar over the past five years.

A new finance team was appointed last June, and Turkey’s central bank dramatically changed monetary policy, raising interest rates, under the watch of Turkey’s central bank governor, Hafiz Erkan.

Since then, the base interest rate in the country has been increased from 8.5% to 45%. However, some observers still do not believe that this is enough to effectively reduce inflation.

Capital Economics expects inflation in Turkey to slow to 30-35% by the end of the year from 65% now, while Bartos Savicki, a market analyst at Conotoxia Fintech, expects it to reach nearly 75% ahead and begin to decline. (News.ro)