Turkey’s central bank keeps interest rates unchanged under new governor

Duvar English

The Monetary Policy Committee of Turkey's central bank on Feb. 22 decided to keep the policy rate unchanged at its meeting chaired by the new chairman Fatih Karahan.

The bank maintained the interest rate at 45 percent, halting monetary tightening cycle after eight consecutive months of hikes. 

Under the governorship of previous chair Hafize Gaye Erkan and Finance Minister Mehmet Şimşek, the central bank abandoned President Recep Tayyip Erdoğan’s unorthodox economic policy to tame inflation with decreasing policy rates.

Under Erkan’s tenure, the central bank had raised interest rate from 8.5 percent in June 2023 to 45 percent January 2024.

The committee stated that monthly inflation increased in January due to month-specific and time-dependent price and wage adjustments which aligned with its inflation projections. The state-run Turkish Statistical Institute reported that inflation hit 64.8 percent in January.

The bank added, “Stickiness in services inflation, geopolitical risks, and food prices keep inflation pressures alive.” 

The bank committee noted that the bank would maintain the current level of the policy rate until a substantial and consistent decrease in the underlying trend of monthly inflation was observed, and until inflation expectations aligned with the projected forecast range. 

Governor Karahan on Feb. 8 announced the year-end inflation forecast as 36 percent for 2024 and 14 percent for 2025. “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation outlook is anticipated,” the bank stated. 

Even though the central bank underscored that its inflation target was five percent in the medium term, its tightening policy failed to control raging inflation and severe depreciation of lira. 

This week, the Turkish lira has plunged to a new all-time low against the dollar, reaching 31 lira for one dollar.