Turkiye ends interest rate hike cycle after eight months and

Türkiye ends interest rate hike cycle after eight months and leaves key interest rate at 45%

Turkish flag over a DenizBank building. Turkey is expected to go to the polls on Sunday.

Ismail Ferdous | Bloomberg | Getty Images

Turkey's central bank kept its key interest rate at 45% on Thursday even as inflation rose sharply after eight consecutive months of rate hikes.

The move was widely expected since the bank announced in January that its 250 basis point hike would be its last of the year, despite inflation currently hovering around 65%.

According to figures from Turkey's central bank, consumer prices in the country of 85 million rose 6.7% last month from December – the biggest monthly increase since August. They rose 64.8% year-on-year in January.

Turkey's key interest rate has risen by a total of 3,650 basis points since May 2023. The recent decision to maintain rather than cut interest rates signals newly appointed Turkish central bank governor Fatih Karahan's alignment with the strategy of his predecessor Hafize Erkan. Karahan took office in early February.

Analysts viewed the central bank's accompanying press release as hawkish, suggesting there will be no rate cut in the near future.

“The Committee expects that the current level of the policy rate will be maintained until there is a significant and sustained decline in the underlying trend in monthly inflation and until inflation expectations move closer to the forecast forecast range,” the bank said in the statement . “The monetary policy stance will be tightened if a significant and sustained deterioration in the inflation outlook is expected.”

Economists expect the current interest rate to be maintained for much of 2024 and expect inflation to roughly halve by the end of the year – meaning monetary easing could still be on the horizon.

“In our view, a longer pause in interest rates is likely in the coming months. With inflation expected to end the year at 30-35% (which is broadly in line with the CBRT forecast of 36%), there is still a chance that the central bank “The easing cycle will begin before the end of the year, which many analysts expect,” wrote Liam Peach, senior emerging markets economist at Capital Economics in London, said in a note on Thursday.

“But we fundamentally expect interest rates to remain unchanged throughout the year and that rate cuts will not occur until early next year.”