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Turkey ends hiking cycle after 8 months, holding key rate at 45%

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

Ismail Ferdous | Bloomberg | Getty Images

Turkey’s central bank held its key interest rate on Thursday, keeping it at 45% despite soaring inflation after eight consecutive months of hikes.

The move was widely expected as the bank indicated in January that its 250-basis-point hikes would be its last for the year, despite inflation now at roughly 65%.

Consumer prices in the country of 85 million last month jumped 6.7% from December — its biggest monthly jump since August — according to the Turkish central bank’s figures. They rose 64.8% year-on-year in January.

Turkey’s key interest rate climbed by a cumulative 3,650 basis points since May 2023. The latest decision to hold rates, rather than cut them, signals consistency from the newly appointed Turkish central bank governor Fatih Karahan with the strategy of his predecessor, Hafize Erkan. Karahan took office in early February.

Analysts viewed the accompanying press statement from the central bank as hawkish and indicating no easing of rates in the near future.

“The Committee assesses that the current level of the policy rate will be maintained until there is a significant and sustained decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range,” the bank’s statement said. “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation outlook is anticipated.”

Economists expect a hold on the current interest rate for much of 2024, and see inflation roughly halving by the end of the year — meaning monetary easing could still be on the cards.

“An extended interest rate pause is likely in our view over the coming months. With inflation likely to end the year at 30-35% (broadly in line with the CBRT’s forecast of 36%), there is still a possibility that the central bank starts an easing cycle before the end of the year, which many analysts are expecting,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a note Thursday.

“But our baseline view remains that interest rates will stay on hold throughout this year and that rate cuts won’t arrive until early next year.”