The Central Bank of Turkey, at a meeting on Thursday, March 21, raised the discount rate by 500 basis points, to 50%. The Associated Press writes about this with a link to the regulator's statement.
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Reason
According to the release, the decision was dictated by the worsening forecast for inflation. “Tight monetary policy will be maintained until there is a significant and sustained decline in the underlying monthly inflation trend,” the central bank said.
Annual consumer price inflation in Turkey rose to 67% in February , exceeding analysts' expectations. Rising prices have left families struggling to afford food, rent and utilities, AP writes.
Turkish President Recep Tayyip Erdogan is a proponent of unorthodox economic policies of lowering interest rates to curb inflation, which runs counter to traditional ideas about the economy, the agency notes. This policy led to skyrocketing inflation and a currency crisis.
After being re-elected as President of Turkey in May 2023, Erdogan agreed to change course and appointed a new economic team. Under her leadership, the Turkish central bank raised the base interest rate from 8.5% in June to 45% in January, after which it announced the suspension of monetary policy tightening. Against this background, the new rate increase came as a surprise to the market, AP notes.
Recall
On February 2, the Central Bank of Turkey kept the discount rate at 45% per annum. This was the first break in the monetary tightening cycle.
- The discount rate