It increased by 500 basis points, its basic loan rate, its central rate, i.e. from 45% to 50%. This decision surprised the markets, as Turkey is in an election period ahead of the municipal elections of 31.3.2024. At the same time, the bank sent a message that it would continue its liquidity policy if inflation prospects were further exacerbated. According to the Monetary Policy Committee (RK) of Turkey’s central bank, “the main trend of monthly inflation in February was higher than expected, driven by inflation in the service sector. While imports of consumer goods and gold slowed down, contributing to improving the current trade balance, other indicators in the short term show an ongoing durable course of domestic demand.” The rigidity in service inflation, inflation expectations, geopolitical risks and food prices keep inflationary pressures alive in Turkey, the PKK notes. Last year, President Erdogan insisted that he did not intend to abandon the low interest rate policy, believing that cheap money strengthens growth and in the long term the problem of leverage of inflation caused by this policy will be solved. However, taking office after the presidential election last May, Turkish economy’s Tsar Mehmet Simsek announced a return to “rational policies”, essentially rejecting Erdogan’s policy until then as a disaster. Since then, the loan rate that remained stable at 8% over 2 years and 3 months at 8.5% has now reached 50%. Speaking today (21.3.2024), at an election rally in Caesarea, Turkish President Recep Tayyip Erdogan said that the biggest struggle is fought against inflation and the mentality that raises the cost of living. “We will protect our citizens’ income from high inflation. This we will do by working, not using fake numbers,” he said and promised that “inflation will decline rapidly in the second half of the year.” Early in the month, the Turkish Statistical Office (TUIK) announced that official annual inflation was recorded in February at 67.07%. On a monthly basis inflation in Turkey is running at 4.53%. However, the credibility of the data of the Turkish Statistical Office is questioned by economic circles and the opposition. The independent ENAG Institute (Inflation Research Group), which is made up of various economists, estimated the increase in Consumer Prices Index annually to 121.98%. Source: RES – ICM
Turkey’s central bank raised loan rate to 50%
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