Turkish interest rates rise to 40 percent

The Turkish Central Bank has raised interest rates in the country to address high inflation. The interest rate was raised by 5 percentage points to 40 percent. This was the sixth consecutive increase.

The interest rate move was higher than expected. Economists polled by Bloomberg News expected an increase of 2.5 percentage points. In October, interest rates also rose by 5 percentage points. The Turkish Central Bank already began changing the course of monetary policy in June under the leadership of new Governor Hafez Gay Erkan. Then interest rates were raised for the first time in a long time to combat inflation.

Read also | The inflation rate in Türkiye rose to more than 61 percent

In recent years, the central bank has actually lowered interest rates, despite the rapid rise in inflation. This was because Turkish President Recep Tayyip Erdogan believed that higher borrowing costs would boost inflation rather than curb it, and put pressure on central bank policy. But after winning the election this spring, he promised a more conventional fiscal and monetary policy.

Swedish Bank

Because of these previous interest rate cuts, Turkey’s inflation rate rose to 85 percent last year. Although inflation has fallen, it is still above 60 percent. Thus the so-called real interest rate, or inflation-adjusted interest rate, remains largely negative despite the large increase in the interest rate. However, the interest rate is now higher than the central bank’s inflation forecast of 36 percent for 2024. Earlier in the day, the Riksbank kept the interest rate unchanged at 4 percent.

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Consequently, the Riksbank temporarily paused interest rates for the first time after eight consecutive interest rate increases. This break came unexpectedly. Economists had expected another increase. The Swedish central bank thus joins central banks in the United States, the euro zone and the United Kingdom, which previously decided not to raise interest rates further. The Riksbank has kept the door open for a new increase in interest rates if inflation proves firmer than expected.