Türkiye says hike to 15% is first step of monetary-tightening era

Istanbul, July 3 (BNA): Turkey’s central bank said last month’s interest rate hike was the “first step” in a monetary tightening cycle, as the administration of new President Recep Tayyip Erdogan tries to slow inflation by nearly 40%.

The bank said in a summary, published on Monday, of the June 22 meeting of the Monetary Policy Committee that last month’s decision to increase the benchmark index to 15% from 8.5% was aimed at “establishing an anti-inflation path as soon as possible.” .

It was the bank’s first hike in more than two years, and signaled a shift from Turkey’s strategy to boost economic growth through ultra-low interest rates, which investors have blamed for causing a spike in inflation. This was also the first amended decision under Governor Hafiz Gay Erkan, who was appointed shortly after Erdogan won the presidential elections in May to extend his rule for a third decade.

However, the move disappointed traders, who were mostly expecting an even bigger increase. Turkey still enjoys one of the lowest real rates in the world, and the lira has fallen nearly 10% against the dollar since the decision, bringing its losses this year to 28%. Traders said Turkish state commercial banks sold up to $1 billion on Monday to prop up the currency.

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Türkiye is due to release inflation figures for June on Wednesday. Economists expect price increases to slow slightly to 38.9%, according to the median Bloomberg survey estimate. The central bank’s next interest rate decision will be on July 20.

Erkan’s predecessor, Sahap Kavjioglu, made monetary policy very easy. In line with Erdoğan’s belief that lower rates are the best way to tackle rising prices.

HF