Turkey's Central Bank Increases Key Interest Rate Amid Inflation Concerns

(MENAFN) In a move to combat persistent inflation, Turkey's central bank announced on Thursday a significant increase in its benchmark interest rate, raising it by 350 basis points from 42.5 percent to 46 percent. This decision marks a reversal of the bank's recent easing cycle.

The Monetary Policy Committee (MPC) acknowledged a moderation in the underlying inflation trend in March. However, it highlighted concerns over an increase in monthly core goods inflation for April and noted that domestic demand remained stronger than anticipated, potentially hindering the progress of disinflation.

"Leading indicators point to a level of domestic demand above projections despite some loss of momentum in the first quarter, suggesting a lower disinflationary impact," the MPC stated in its announcement.

The central bank has announced that it is actively observing the possible effects of increasing global trade protectionism on the disinflation process. This monitoring encompasses several factors, such as global economic activity, commodity prices, and capital flows. Additionally, the bank highlighted that inflation expectations and pricing behaviors remain significant risks to the disinflation process.

Thursday's rate hike comes after the central bank had lowered the policy rate by 2.5 percentage points to 42.5 percent in March, citing an improvement in inflation trends observed in February.

Turkey has been grappling with high inflation for several years. Between June 2023 and March 2024, the central bank aggressively tightened monetary policy, increasing the key interest rate from 8.5 percent to 50 percent. It then initiated an easing cycle towards the end of last year, supported by positive inflation indicators, which has now been interrupted by this latest rate increase.

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