Economy in Turkey: Central Bank raises policy rate from 15 percent to 17.5 percent

The Central Bank raised its policy rate from 15 percent to 17.5 percent. The market expectation was that the interest rate, which was increased by 650 basis points last month, would be increased by 500 basis points today.

The Central Bank’s (CBRT) Monetary Policy Committee (PPC) announced its interest rate decision. The bank increased the interest rate by 250 basis points to 17.5 percent.

The amount of interest rate increase remained significantly below market expectations. In addition to raising interest rates today, the CBRT “made selective credit and quantitative tightening decisions that will support the monetary tightening process”.

In the statement about the decision, it was emphasized that exchange rate, wage and tax increases would negatively affect inflation.

The interest rate decision statement, which followed the agreements with the Gulf countries, also drew attention to the emphasis on “foreign direct investments, a significant improvement in external financing conditions”. There was a slight increase in the dollar exchange rate after the decision.

Last month, the Bank had raised the interest rate by 650 basis points to 15 percent, the first rate increase in 27 months.

The average expectation of economists in the market for the level at which the interest rate would be raised today was 20 percent in the AA and Reuters poll and 18.5 percent in the Bloomberg survey.

The government, which made interest rate cuts and opened the credit taps in the 2-year period before the election, went to an interest rate increase after the election and turned down the credit taps.