No Turkish Interest Rate Hike This Month

July 24, 2018

Amid a vicious circle of currency depreciation and accelerating inflation, policymakers at the Central Bank of Turkey had hiked their benchmark interest rate by 75 basis points in April, 300 bps at an unscheduled conference on May 24, and 125 bps on June 7. This restraint had slowed but not halted market trends. Inflation rose to a 14-year high of 15.4% last month. A statement released after this month’s scheduled policy review observes more visible signs of deceleration in domestic demand but concedes that although cost factors and volatile food prices are mainly responsible for higher inflation, “price increases have shown a generalized pattern across subsectors. Despite the milder impact of demand conditions on inflation, elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior.” Nevertheless, rather than hiking the 17.75% interest rate by at least another full percentage point as market analysts were anticipating, officials merely repeated a promise to maintain a tight stance until inflation shows “significant improvement…. “If needed, further monetary tightening will be delivered.” Investors reacted with disappointment to the failure to tighten now instead of a giving a conditional promise to do so later.

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



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