Turkey’s central bank mulls giant interest rate hike up to 10% to fight inflation (Al Monitor, Sept.16,2023)

Turkey’s central bank is considering a mammoth rate hike of up to 10 percentage points next week to step up the fight against a sticky inflation and boost Ankara’s economic credentials in the eyes of foreign investors, Al-Monitor has learned.

Sources close to the bank’s Monetary Policy Committee (PPK) told Al-Monitor that a possibly drastic hike at the committee’s Sept. 21 meeting stems from concerns over monthly consumer inflation topping 9% in July and August as well as other factors inhibiting efforts to rein in prices.

With a new economic leadership in charge since June, such a whopping increase would be seen as cementing a reversal from President Recep Tayyip Erdogan’s unorthodox policies of the past several years, largely blamed for Turkey’s current economic woes. The central bank already delivered a bigger-than-expected hike of 750 basis points in August, bringing its benchmark one-week repo rate to 25%. Whether Erdogan — a self-declared “enemy of interest rates” — and his inner circle will approve of another massive hike remains unknown, but the PPK’s new members, who were appointed as part of Erdogan’s overhaul in the country’s economy management after his reelection, are inclined to raise it by up to 10 percentage points and follow up with other monetary-tightening measures, the sources said.

In the bank’s assessments, the resurging inflation, which hit an annual high of nearly 60% in August, is a result of the continuing vigor of domestic demand, a consistent services inflation and upward cost pressures stemming from tax and pay hikes and the rising cost of imports due to the weakening of the Turkish lira. And with the added impact of increasing fuel prices, inflation expectations and pricing behavior are deteriorating more than expected.

https://www.al-monitor.com/originals/2023/09/turkeys-central-bank-mulls-giant-interest-rate-hike-10-fight-inflation