An increase of 500 basis points by the Turkish Central Bank on Thursday to increase the rate of repurchases from 30 per cent to 35 per cent a week is also the third consecutive month of the Bank’s significant tightening of monetary policy to contain inflation, which is expected to be close to 70 per cent this year.
The Monetary Policy Committee of the Turkish Central Bank reiterated its readiness to further increase interest rates as necessary until a significant improvement in inflation prospects is achieved. Turkey experienced a high inflation rate of 61.5 per cent in September, and the economic outlook deteriorated as a result of soaring oil prices.
The Central Bank added that it had decided to continue its monetary austerity policy in order to establish an anti-inflation process as soon as possible to stabilize inflation expectations and control the deterioration of price behaviour.
Since Hafize Gaye Erkan (June) assumed the post of Governor of the Central Bank, the Central Bank has increased its interest rate by 2,650 basis points, and most analysts expect that the Central Bank will further tighten its policies to narrow the gap between interest rates and inflation.
Since Erdoğan ' s successful re-election as President of Turkey, restoring price stability has become a priority. He had previously supported low interest rates, which had led to a currency crisis at the end of 2021 and raised inflation to over 85 per cent last year.
In the past few years, Erdoğan has repeatedly criticized austerity monetary policy as an enemy of interest rates, but he recently stated that austerity would help to reduce inflation.
Turkish Minister of Finance Mehmet Simsek claimed that the new policy of the economic team enjoyed the full support of Erdoğan, without any hesitation.
Moreover, at a time when inflation is expected to slow from the second quarter of next year, interest rates need to be raised to attract foreign investment into the Turkish local bond market.
“The consensus was reached and the Turkish Central Bank again increased interest rates. It is felt that between now and the end of the year we will see a two-time increase of 500 basis points and that the policy rate may rise to 45 per cent.”
At the same time, the Turkish reference unit is a 7 per cent drop on Wednesday and a two-degree fusion of the disk. Erdoğan criticized the Western countries that supported Israel's bombing of Gaza the same day and called for an immediate ceasefire and unhindered access for relief supplies to Gaza.
This comment raises concerns about the country ' s tensions with the West, which could undermine Turkey ' s efforts to secure foreign investment.
By Thursday, Erdoğan had again spoken of Israel's brutal massacre of Palestinians, its brutal attacks on Gaza, and its failure to respect international law by Western States because of “Muslim blood”. However, the stock reference did not decline that day, but rebounded by 3 per cent.