Turkey Leaves Interest Rate Unchanged at 50%

The Turkish Central Bank kept the key interest rate unchanged at 50%, despite the continued rise in inflation near 70%, according to the bank’s website.

This decision is consistent with the expectations of all economists surveyed by Bloomberg, with the exception of two, who estimated that the interest rate would remain unchanged until the end of the third quarter, before the Central Bank was “forced” to reduce it during the last three months of the year to curb inflation at levels close to the Central Bank’s target, according to Bloomberg.

Inflation in Turkey rose for the fifth month in a row last March, reaching 68.5% compared to 67.1% in February. This compares to the consensus forecast of analysts polled by Bloomberg at 69.1%.

While a survey conducted by the Central Bank last week showed that inflation expectations at the end of the year are still much higher than its expectations of 36%, which Governor Fatih Karahan is scheduled to announce in early next May.

Karahan also pledged to take “whatever measures necessary” to limit the rise in inflation, indicating further tightening of monetary policy if necessary.

Under the siege of inflation fears, Turkish citizens are increasing their holdings of hard currencies for fear that the lira will suffer a sharp decline after the municipal elections held on March 31, the result of which represented an unprecedented defeat for President Recep Tayyip Erdogan. 

The Turkish lira was also the worst performing among emerging market currencies last month, as it fell 3.2% against the US dollar.