Turkey Central Bank Will Raise Interest Rate

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Turkey Central Bank Will Raise Interest Rate

Turkey's Central Bank Will Raise Interest Rate To 20%, According To Economists

According to a recent poll of economists, the Turkish central bank is forecasted to raise the interest rate in the country to a high level of 20%. Doing so will highlight how the inflation problem is pushing the central government to take more stern action.

However, some experts believe that the increase in the policy rate will be much smaller based on the last few months. But even if we get a smaller rate hike, one can't ignore that the interest rate in Turkey has become really high.

Starting in June, the Central Bank of Turkey started its tightening cycle, which further intensified after the appointment of Hafize Gaye Erkan as the new chief of the central bank.

Record High Interest Rates In Turkey

Under his guidance, the central bank underwent a policy pivot by introducing a 900 bps rate hike. If we look around, such a huge rate hike is unheard of in other economies around Turkey. Overall, the central bank pushed the rate from a mere 8.5% to a high level of 17.5%.

However, the annual inflation in Turkey is now standing near 47.83%, which suggests that the annual interest rate is still below that level.

The central bank has made it clear that it will introduce rate hikes slowly in an attempt to prevent any negative effects on the economy.

For the most part, the economists are expecting a 250 bps rate hike, which will lift the interest rate to around 20%. As for the forecast regarding the interest rate, it is between 18% - 20.50%.

According to HSBC, the real policy rate continues to delve into deeply negative territory. In addition, the disinflation is becoming difficult as the central bank is only introducing small rate hikes.

The HSBC economists also added that by the end of December 2023, the interest rate in Turkey will be near 30%, which is 10% higher than the current levels.

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