Turkish Monetary Policy Tightened Significantly Further

June 7, 2018

With PPI inflation over 20% and CPI inflation above 12%, monetary officials raised Turkey’s one-week repo rate by an additional 125 basis points to 17.75%, bringing the increase of that newly designated main policy rate to 9.75 percentage points in the past ten days. In a statement from the Monetary Policy Committee of the Central Bank of the Republic of Turkey, officials wrote, “despite the mild outlook for demand conditions, elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior.” They promise to keep a tight stance and augment such further if needed, monitoring “inflation expectations, pricing behavior and other factors affecting inflation” and not throttling back restraint until the inflation outlook is improved significantly. A fly in the ointment, however, is that an election on June 24 may greatly enhance the powers of Turkish President Erdogan, who among other goals seeks to acquire more direct influence over Turkish monetary policy. Erdogan does not believe monetary restraint lowers inflation.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



Comments are closed.