Many Turkish consumers are suffering from the sharply increased prices for food and other goods.
(Photo: dpa)
Istanbul After the turnaround in interest rates in June, Turkey is facing further tightening of monetary policy. The path taken will be continued until there is a significant improvement in the inflation outlook, according to the minutes of the June 22 interest rate meeting, which were published on Monday.
The currency watchdogs had decided to raise the key interest rate from 8.5 to 15.0 percent. The inflation rate is currently around 40 percent, well above the central bank’s target of five percent.
The lira fell to a new record low against the dollar earlier in the week. She fell by 0.5 percent. For one dollar, 26.11 lira had to be paid. This year alone, the lira has depreciated more than 28 percent against the dollar, after 44 percent in 2021 and 30 percent in 2022. This exacerbates the inflation problem because the country, which is poor in raw materials, purchases many goods from abroad and has to pay for them in foreign currency.
One reason for the downward trend is the long-standing unorthodox monetary policy of the central bank. Unlike the western central banks, it has not increased its interest rates in the fight against inflation, but has even lowered them.
The turnaround in interest rates has now been initiated under the leadership of your new boss, Hafize Gaye Erkan. However, the economists surveyed by the Reuters news agency had expected a significantly larger rate hike to 21 percent.
Many investors doubt the independence of the Turkish central bank. You see them under the influence of President Recep Tayyip Erdogan.
He has repeatedly described himself as an enemy of interest because he wants to boost the domestic economy with cheap money. After his re-election a few weeks ago, however, Erdogan signaled a change in his controversial policy.
His newly appointed finance minister, Mehmet Simsek, will take swift steps with the central bank, Erdogan recently said: “Following the considerations of our finance minister, we have accepted that he will take swift action in consultation with the central bank.”
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