CBRT Raises Interest Rates to 45% with a 250 Basis Point Increase

Economists had anticipated a 250 basis point increase in the policy rate by the CBRT.

The decision statement from the Monetary Policy Committee included the following:

"In December, headline inflation recorded an increase consistent with the outlook presented in the latest Inflation Report. The current level of domestic demand, rigidity in service prices, and geopolitical risks continue to keep inflation pressures alive. On the other hand, indicators for the recent period suggest that the balancing of domestic demand, reflecting the effects of monetary tightening on financial conditions, is proceeding consistently with the envisaged disinflation process. The Board assesses that limited improvements have started in inflation expectations and pricing behaviors. External financing conditions, strengthening reserves, improvement in the current account, and demand for Turkish lira assets continue to contribute to exchange rate stability and the effectiveness of monetary policy. In this framework, the main trend of monthly inflation has continued to decline.

Considering the delayed effects of monetary tightening, the Board evaluated that the level of monetary tightness necessary for the establishment of disinflation has been reached, and this level will be maintained as long as necessary. The Board assessed that the policy rate will be maintained at its current level until a significant decrease in the main trend of monthly inflation is achieved and inflation expectations approach the forecast range. In case significant and permanent risks arise on the inflation outlook, monetary tightness will be reviewed.

The Board is simplifying the current micro and macroprudential framework to enhance the functionality of the market mechanism and strengthen macrofinancial stability. In line with the simplification process, the Board will support the monetary transmission mechanism with macroprudential decisions, despite possible volatility in credit supply and deposit interest rates. The Board will continue to diversify the sterilization tools it uses to support quantitative tightening, in line with the simplification process.

Taking into account the delayed effects of monetary tightening, the Board will continue to determine the monetary and financial conditions that will establish disinflation and achieve the medium-term target of 5% with determination.

Indicators related to inflation and the main trend of inflation will be closely monitored, and the Board will continue to use all tools at its disposal in line with the main objective of price stability.

The Board will continue to make its decisions in a predictable, data-oriented, and transparent framework."

34-Point Interest Rate Increase in 2023

The Central Bank of the Republic of Turkey implemented a total of 34 points of interest rate hikes last year.

Starting from its June meeting, the Central Bank tightened its monetary policy.

In its first meeting under the chairmanship of the new President Hafize Gaye Erkan in June, the committee raised the policy rate by 6.5 points to 15%.

In the July meeting, the policy rate was increased by 2.5 points to 17.50%.

Continuing the interest rate hike in August, the Central Bank raised the rate to 25% with a 7.5-point increase.

In the September meeting, the policy rate was increased by 500 basis points to 30%.

In October, the Central Bank continued its interest rate hike with another 500 basis point increase, bringing the rate to 35%.

In the November meeting, the policy rate was raised by 500 basis points to 40%.

In December, the interest rate was increased by 250 basis points, reaching 42.50%.