FX.co ★ Turkey's economy teeters on edge as central bank holds rates at 50%

Turkey's central bank has once again maintained its key interest rate at a staggering 50%.

As widely expected, the regulator held the policy rate steady at its highest level in two decades for the fifth consecutive meeting. The central bank clarified that future steps would focus on creating the monetary and financial conditions necessary to achieve a medium-term inflation target of 5%.

According to policymakers, core inflation for the second quarter of 2024 remains below its average. Domestic demand is expected to lose momentum in the third quarter, leading to lower inflationary pressures. However, experts do not rule out the possibility of further monetary policy tightening if forecasts and macroeconomic reports worsen.

The regulator plans to achieve a year-end inflation rate of 38% in 2024 and 14% in 2025. Notably, Turkey’s annual inflation rate stood at 61.78% in July.

In March 2024, the central bank raised its key interest rate from 45% to 50%. This followed a pause in the tightening cycle in February. The move came after a series of rate hikes starting in June 2023, when the rate was around 8.5%. Hafize Gaye Erkan, who took responsibility for the policy, faced opposition from other officials appointed by President Recep Tayyip Erdogan. The majority of policymakers advocated lower interest rates despite high inflation, which was at odds with Erkan’s approach. As a result, she was forced to resign in early February.