Interest rate hike by Turkey’s Central Bank

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The Central Bank of the Republic of Turkey Monetary Policy Committee convened today (March 18) and has decided to increase the policy rate (one-week repo auction rate) from 17 percent to 19 percent.

Chaired by Central Bank Governor Naci Ağbal, the Monetary Policy Committee (MPC) has released a statement after its meeting.

"Considering the upside risks to inflation expectations, pricing behavior, and the medium-term inflation outlook associated with these developments, the Monetary Policy Committee has decided to implement a front-loaded and strong additional monetary tightening," the Bank has said.

Taking into account the end-2021 forecast target, a tight monetary policy will be maintained until strong indicators point to a permanent fall in inflation and price stability, the Bank has added further.

As reported by the state-run Anadolu Agency (AA), the Central Bank announced an interest rate hike of one percentage point above market expectations. The median forecast by 24 economists surveyed by the AA last Friday was a rise of 100 base points, i.e. 1 percentage point.

Last month, Turkey saw a 15.61 percent annual hike in consumer prices, according to the country's statistical authority TurkStat. The Central Bank has set a medium-term inflation target of 5 percent. According to its schedule, the bank will hold twelve MPC meetings this year.

The course of interest rates in Turkey

After Central Bank Governor Murat Çetinkaya was removed from office and Murat Uysal was appointed in his place, the Monetary Policy Committee took its first decision of interest rate cut in July 2019 and cut the policy rate from its current level of 24 percent to 19.75 percent.

After its meeting on September 12, 2019, the Monetary Policy Committee of the Central Bank lowered the policy rate to 16.50 percent. The Committee reduced the interest rate to 14 percent on October 24, to 12 percent on December 12 and to 11.25 percent on January 16, 2020.

On February 19, the Central Bank decreased the policy interest rate from 11.25 percent to 10.75 percent. In the meeting on March 17, the policy interest rate was reduced from 10.75 to 9.75 percent.

In its meeting on April 22, the Bank decreased the policy interest rate from 9.75 to 8.75 percent. On May 21, the interest rate was further reduced to 8.25 percent. The Bank kept this rate unchanged in June, July and August.

In its September meeting, the Monetary Policy Committee of the Central Bank decided to increase the policy rate (one-week repo auction rate) from 8.25 to 10.25 percent. The interest rate was kept constant on October 22.

On November 7, 2020, Naci Ağbal was appointed as the new Governor of the Central Bank of Turkey by a Presidential decree.

The Central Bank announced an interest rate hike, raising the policy rate from 15 to 17 percent in December 2020. It kept the policy rate (one-week repo auction rate) constant at 17 percent in January 2021. (SD)