2023-08-24 14:30:21
“The Committee has decided to continue the process of monetary tightening in order to establish the course of disinflation as quickly as possible (…) and to control the deterioration in price behavior”, indicates the central bank in its press release.
“Recent indicators point to a continued rise in the underlying inflation trend,” she said.
“We are determined,” Finance Minister Mehmet Simsek said on social media. “Price stability is our top priority.”
This new increase, of an unexpected magnitude, bears the signature of the new Turkish economic team which took office following the re-election at the end of May of President Recep Tayyip Erdogan, however an ardent defender of low interest rates.
Faced with inflation still close to 48% and the economic crisis from which Turkey is struggling to emerge, the Head of State is agreeing to a rate hike for the time being.
After two previous limited increases, the Turkish president finally gives free rein to the new governor of the central bank, Hafize Gaye Erkan, and to the Minister of Economy, analysts believe.
Early Thursday followingnoon, the Turkish lira jumped more than 6% once morest the dollar following the central bank’s announcement and the confidence expressed by Mr. Erdogan vis-à-vis his new economic team.
“We are taking determined measures to solve the problems caused by inflation,” he said in a televised address.
-“Impressive”-
This increase “will go a long way to reassure investors that the return to political orthodoxy is on the right track,” said Liam Peach, analyst at Capital Economics.
“Turkish markets are accepting the central bank’s rate hike very well today. Hafize Gaye Erkan and his team are really impressive,” said Timothy Ash, economist at BlueBay Asset Management.
After the elections, Ankara reduced its defense of the Turkish lira, artificially supported for months by massive sales of currencies to prevent it from unscrewing.
The currency had lost a quarter of its value once morest the dollar since the end of May.
The new economy team immediately embarked on a battle once morest inflation, which hit 85% year on year last October.
Mr Simsek and Ms Erkan allowed the Turkish lira to start depreciating once morest the dollar in a bid to ease pressure on depleted state coffers.
They also imposed a series of more technical measures aimed at balancing the economy and restoring the confidence of Turkish consumers and foreign investors.
-Gap-
“The central bank seems to be giving priority to building reserves and improving external imbalances,” said Muhammet Mercan, chief economist at ING Bank.
The central bank expects the annual inflation rate to reach 60% between April and June next year.
Turkey’s annual inflation rate hit 47.8% in July, partly due to the billions of dollars in social spending Mr Erdogan made during his election campaign.
“There remains a significant gap between the policy rate and current and expected inflation,” Mercan said.
Mr. Erdogan has spent years pressuring the nominally independent central bank to cut rates, convinced that high interest rates cause inflation, running counter to standard economic theories.
The president has in the past fired previous central bank governors who opposed his unorthodox views.
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