No let-up in monetary tightening until inflation comes down: Turkey
ANKARA: Central Bank of the Republic of Türkiye (CBRT) on Monday announced that the monetary tightening process, which began last month with a sharp post-election rate hike, is likely to continue until a significant improvement is achieved in the inflation outlook.
“The monetary tightening process is expected to continue until a significant improvement is achieved in the inflation outlook,” according to the central bank’s minutes of its June 22 policy meeting, wherein it hiked its main interest rate by 650 basis points to 15%.
The policy reversal was the first step of a tightening process initiated to establish disinflation as soon as possible, Daily Sabah said, quoting the CBRT.
“The deterioration in price stability threatens macroeconomic stability and especially financial stability. Accordingly, the committee decided to implement a monetary tightening process, the steps of which are gradually strengthened when and as necessary,” the central bank said.
The rate hike came in the first policy meeting under the new governor, Hafize Gaye Erkan.
“The committee evaluated that the current monetary policy framework is far from achieving the 5% inflation target, given the inflation outlook and upside risks,” the bank added.
It is pertinent to mention here that just over a month after President Tayyip Erdogan won re-election in a tight contest, the country is embracing a more conventional economic policy after years in which interest rates were slashed despite soaring inflation.
The bank said the U-turn after a two-year easing cycle was the first step of a process to curb inflation. Annual inflation was near 40% in May after touching a 24-year high above 85% in October last year.
The central bank’s net reserves rose to $9.19 billion in the week to June 23, its biggest rise on record. Reserves fell to $-5.7 billion in the week to June 2, their lowest since the data began being published in 2002.
Although the central bank’s reserves have rebounded since mid-June, state banks are still selling dollars to meet demand from maturing lira deposit accounts known as KKM.
Erdogan’s government introduced the KKM scheme in late 2021 to stem a historic currency crash that was largely brought on by his economic programme of cutting rates to stoke growth, exports and investment.
— Additional input from Reuters
