Turkey Central Bank Hikes Rate By 500 Bps

Turkey's central bank raised its policy rate by 500 basis points to combat inflation and pledged to strengthen the monetary tightening until a significant improvement in the inflation outlook is achieved.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey, or CBRT, headed by Governor Hafize Gaye Erkan, decided to raise the policy rate to 35.00 percent from 30.00 percent.

This followed a 500 basis point hike in September and a 750 basis point increase in August.

"The Committee decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior," the bank said in a statement.

The bank said the policy rate will be determined in a way that will help to achieve the 5 percent inflation target in the medium-term.

In addition to the increase in the policy rate, the bank will continue to make decisions on quantitative tightening and also selective credit tightening to support the monetary policy stance, the bank added.

Capital Economics' economist Liam Peach said the bank will continue with 500 bps steps at the next two meetings this year.

Such a tightening of policy should help to turn real interest rates positive before the end of next year and achieve a material improvement in Turkey's macro imbalances, the economist noted.

Peach said the next phase of the policy shift will require the bank to keep policy rate at a restrictive level for a prolonged period of time.

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