Central Bank of Turkey Tightens Sharply

November 19, 2020

The Central Bank of Turkey raised the one-week repo rate by 475 basis points to 15.0% in an action to counter inflation caused by the depreciation of the lira. Among emerging market economies, Turkey’s currency this year has been the weakest. Turkish monetary officials, like their counterparts around the world, had lowered their interest rate progressively in response to the initial appearance of the Covid pandemic. Cuts made in each of the first five months of 2020 had totaled 375 basis points, but today’s action follows a 200-basis point increase at the September policy review, resulting in a net 300-basis point increase of the central bank interest rate from 12.0% at the end of 2019. A released statement after today’s meeting doubles down on the commitment to keep Turkey’s policy stance tight until a trend of disinflation appears intact and likely to endure. Being compelled to do this will be particularly painful to Turkey’s economy because Covid restrictions on activity have had to be reinstated in part.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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