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

Turkey still has one of the world’s lowest real rates



Turkey still has one of the world’s lowest real rates and the lira has dropped almost 10% against the dollar since the decision, extending its loss this year to 28%.
Image Credit: REUTERS

Ankara: Turkey’s central bank said last month’s interest-rate raise was the “first step” of a monetary tightening cycle, as the administration of newly-reelected President Recep Tayyip Erdogan tries to slow inflation of almost 40 per cent.

Last month’s decision to increase the benchmark to 15 per cent from 8.5 per cent was meant to “establish the disinflation course as soon as possible,” the bank said in a summary, published on Monday, of its June 22 Monetary Policy Committee meeting.

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It was the bank’s first hike in more than two years and signaled a shift from Turkey’s strategy of boosting economic growth through ultra-low interest rates. It was also the first rate decision under Governor Hafize Gaye Erkan, who was appointed soon after Erdogan won a presidential vote in May to extend his rule into a third decade.

Turkey still has one of the world’s lowest real rates and the lira has dropped almost 10 per cent against the dollar since the decision, extending its loss this year to 28 per cent. On Monday, Turkish state-run commercial banks sold as much as $1 billion to prop up the currency, according to traders.

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Turkey is scheduled to release inflation numbers for June on Wednesday. Economists expect price rises to slow slightly to 38.9 per cent, according to the median estimate of a Bloomberg survey. The central bank’s next rate decision is on July 20.

Erkan’s predecessor, Sahap Kavcioglu, eased monetary policy significantly, in line with Erdogan’s belief that low rates were the best way tackle price rises.

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