Turkish central bank surprises markets by 500 basis points rate hike

Turkey’s central bank surprised the markets by raising its policy rate by a larger-than-expected 500 basis points to 40%, bringing the total hike since June to 3150 basis points. Analysts had anticipated a 250 basis points increase.

The central bank signaled a slowdown in the pace of monetary tightening as it approaches its peak, emphasizing that the current level of tightness is sufficient to establish a disinflation course. Despite expectations of a completed tightening cycle in a short period, policymakers cautioned that monetary tightness would be maintained as needed for sustained price stability. +

The shift in monetary policy, initiated in May with new leadership, reversed the previous trend of rate cuts amid high inflation, which led to a currency crisis in 2021. With inflation in Turkey standing slightly above 60% and expected to rise further, reaching a peak of 70%-75% next year, the central bank is adjusting its approach to address the challenging economic conditions.