Turkey's Central Bank Slows Pace of Interest-Rate Hikes, Signals Peak Is Near -- Update
21 December 2023 - 11:12PM
Dow Jones News
By Ed Frankl
Turkey's central bank on Thursday raised its key interest rate
for the seventh consecutive meeting, but slowed the pace of the
rise, signaling that monetary tightness was close to the rate
required to reduce inflation.
The central bank raised the country's benchmark interest rate,
the one-week repo rate, to 42.5% from 40%, matching expectations
from a consensus of economists polled by FactSet. The 0.25
percentage-point hike was less than the three previous increases,
which were 0.5 percentage points each.
It came after Turkish inflation edged up in November to 62% from
61% in October, significantly higher than the bank's 5% medium-term
target, having continued to rise through the summer.
However, recent indicators have also suggested that domestic
demand continues to ease as monetary tightening impacts the economy
more clearly, it added, repeating language from its previous
meeting.
"The [monetary policy] committee anticipates to complete the
tightening cycle as soon as possible," the bank said.
"Assessing that monetary tightness is significantly close to the
level required to establish the disinflation course, the [monetary
policy] committee reduced the pace of monetary tightening," the
bank said.
The transmission of monetary policy was also helped by a notable
improvement in external financing conditions, continued increases
in foreign-exchange reserves and the acceleration in domestic and
foreign demand for lira-denominated assets, it added.
Still, the commentary doesn't close the door on the tightening
cycle, according to Nicholas Farr, emerging Europe economist at
Capital Economics, who expects one final 250 basis-point hike in
January.
"More importantly, policy makers will need to keep interest
rates high for an extended period if they want to bring inflation
down to single digits," he added.
The lira has fallen 36% against the U.S. dollar in the year to
date, according to FactSet data.
Turkey's central bank has steadily raised rates since June in a
return to more orthodox monetary policy under governor Hafize Gaye
Erkan, a former executive at Goldman Sachs. It reversed a stance of
maintaining lower rates favored by President Recep Tayyip Erdogan
prior to his re-election earlier this year.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
December 21, 2023 06:57 ET (11:57 GMT)
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