Ankara: The Turkish central bank has delivered a second interest rate hike in two months to fight high inflation, a new sign of adherence to orthodox monetary policies.
The bank’s monetary policy committee said in a statement on Thursday that it decided to increase the benchmark interest rate (one-week repo rate) by 250 basis points to 17.5 per cent, adding the door remains open for further hikes this year, reports Xinhua news agency.
The committee decided to continue the monetary tightening process to establish the disinflation course as soon as possible, anchor inflation expectations, and control the deterioration in pricing behavior, the statement said.
“Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved,” it said.
On June 22, the bank hiked interest rates sharply by 6.5 percentage points to 15 per cent, marking a move toward a more conventional economy and a turnaround in President Recep Tayyip Erdogan’s previous low rate policy.
After he was re-elected in May, Erdogan appointed former US-based bank executive Hafize Gaye Erkan as the central bank governor, and Mehmet Simsek, a well-known former banker, as the treasury and finance minister, in a bid to regain investor confidence and bolster foreign investment flow to ease Turkey’s foreign exchange crunch.
Erdogan concluded late Wednesday a tour of Gulf Arab nations to secure investment and funding for his country’s strained economy.
Besides trade deals with Saudi Arabia and Qatar, Turkey also signed deals worth over $50 billion with the United Arab Emirates (UAE) on the last leg of the trip.
“The agreements, covering sectors including export financing, earthquake bonds, energy, defense, infrastructure, technology, and banking, reflect the UAE’s confidence in our (economic) program,” Simsek said in a tweet.
The Turkish government’s new economic team welcomed the agreements as the ailing lira weakened further in the past weeks, hitting all-time lows against the US dollar.
The annual inflation in the country eased to 38.2 per cent in June, down from a 24-year peak of 85.5 per cent in October 2022.