Turkish Central Bank raises lending rate by 75 basis points
“Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior. Upside movements in import prices have increased such risks. Accordingly, the Committee decided to implement a measured monetary tightening to support price stability,” said a statement released on April 25 after a Monetary Policy Committee (MPC) meeting.
“Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered,” it added.
Policy rate unchanged
The late liquidity window, the rate it uses to set bank funding costs, was increased from 12.75 percent to 13.50 percent, according to the bank’s statement.
Policy makers of the bank kept the former MPC decision on short-term interest rates unchanged.
The bank’s policy rate, the one-week repo rate, was held at eight percent. The MPC also kept the marginal funding and overnight borrowing rates constant at 9.25 and 7.25 percent, respectively.
At this year’s first MPC meeting on Jan. 18 and the second meeting on March 7, the Central Bank kept all the interest rates unchanged.
According to the bank’s program, the next MPC meeting will be held on June 7, just 16 days before the elections. It will be followed by four other meetings this year.
Despite Erdoğan’s rebuke
Erdoğan, a staunch defender of lower interest rates, has repeatedly rebuked policy makers at the Central Bank for keeping the interest rates high.
“We held a meeting on interest rates just before I went for an overseas trip. We spoke about how to lower them. But the Central Bank increased the rates when I was abroad. They always speak of ‘one-man rule’ [in Turkey] but what sort of a ‘one-man rule’ is this? They do not implement the decision we took. They have gone behind my back,” Erdoğan said on April 5.
Meanwhile, the lira strengthened one percent by 4.0475 per dollar just after the decision of the MPC.
The lira plunged to historically low levels, seven percent against the dollar and 10 percent against the euro, since the start of this year amid persistently high inflation rates and global risky developments.
The key inflation rate is still more than double of the Central Bank’s target of five percent.