Istanbul (AFP) – Turkey’s central bank hiked its key interest rate to 46 percent on Thursday after a month of protests over the arrest of Istanbul’s opposition mayor and economic uncertainty provoked by US President Donald Trump’s sweeping tariffs. That represents the first hike since March 2024, in what economists hail as a “strong signal of commitment” to a tight monetary policy stance.
The rate hike came as Turkey was roiled by street protests against the arrest and jailing last month of Istanbul’s popular mayor, Ekrem Imamoglu, on graft charges he denies, which sent the Turkish lira to record lows against the dollar. It also follows US President Donald Trump’s global tariffs that sparked growing economic uncertainty despite the relatively low 10 percent baseline tariff that Washington has applied to Turkey.
The monetary policy committee “has decided to raise the policy rate from 42.5 percent to 46 percent,” the central bank said in a statement.
– Risks to inflation –
Nicholas Farr, emerging Europe economist at London-based Capital Economics, said the decision “is a strong signal of commitment to a tight policy stance,” in a policy note. It also “suggests that policymakers have become more concerned about upside risks to inflation,” he said. Turkey’s annual inflation that soared to 75 percent in May last year fell to 38.1 percent in March, its lowest level since December 2021, according to official figures released early this month.
But in April, “monthly core goods inflation is expected to rise slightly due to recent developments in financial markets,” the bank warned, saying that policymakers would closely monitor capital flows amid the current uncertainty around US trade protectionism. Turkish authorities are officially targeting 24 percent inflation by the end of 2025.
In addition to calls for boycotts against companies close to the government, the wave of protests has led to a significant decline in the Istanbul Stock Exchange, which has lost more than 13 percent since its close on March 18. On the day of Imamoglu’s arrest, the Turkish lira had plummeted by around 12 percent, reaching its lowest level ever. This drastic drop was brief, but the lira has still lost more than four percent against the dollar since March 19, despite the $50 billion injection by the central bank to limit the damage.
The bank said Thursday the tight monetary stance would be maintained “until price stability is achieved via a sustained decline in inflation.” The Committee will adjust the policy rate prudently on a meeting-by-meeting basis with a focus on the inflation outlook,” the bank said. “Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen.”
© 2024 AFP
