The Central Bank of Turkey kept the discount rate at 45% per annum. This is the first meeting in the cycle of tightening monetary policy, at which the regulator did not raise the rate.
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The Turkish regulator said that the current level of the policy rate will be maintained until there is a significant and sustained decline in the main trend of monthly inflation and until inflation expectations reach the required range.
In January, the annual inflation rate in Turkey was at the level of 64.86%.
The decision to keep the rate unchanged was expected. This forecast, in particular, was given by all 11 economists surveyed by Reuters. At the previous meeting, the regulator signaled that the tightening of monetary policy had reached the level necessary to reduce inflation.
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Last week, the new head of the Central Bank of Turkey, Fatih Karahan, who replaced Hafize Gaye Erkan in this post, also said that there is no need for a further rate increase. But Karakhan stressed that it is too early to talk about a transition to a rate reduction.
This strengthened analysts' opinion that the Turkish Central Bank will remain hawkish until inflation begins to slow down. This is expected to begin in the middle of the year. By the end of the year, the regulator expects inflation to drop to 35%.
The median forecast of experts surveyed by Reuters suggests that by the end of 2024, the rate in Turkey will drop from the current 45% to 37.5% per annum. Only one in ten survey participants believes that the rate will remain at 45%. In general, forecasts suggest a range from 35% to 45% per annum.
Recall
Since the summer of 2023, the Turkish Central Bank has increased the interest rate eight times in a row. The first increase in this cycle occurred in June, when the regulator almost doubled the rate – from 8.5% to 15% per annum. In July, the Central Bank of Turkey raised the rate to 17.5%, in August – to 25%, and in September – to 30%. As a result of the October meeting, the rate increased to 35%, in November – to 40%. In December, the rate rose to 42.5%, and in January 2024 – to 45%.