Turkey’s central bank has ended its tightening cycle by increasing the one-week repo rate to 40% for the sixth time in a row.
The Turkish Monetary Policy Committee declared in a statement that it had decided to raise the interest rate from 35% to 40% in an effort to combat ongoing inflationary pressures and maintain long-term price stability. The action was taken in October, a month that saw a minor dip in headline inflation.
Turkey’s annual inflation dropped marginally to 61.36% in October from the nine-month high of 61.53% recorded in September, according to the Turkish Statistical Institute’s most recent data.
In response to these inflationary pressures, the central bank raised the policy interest rate, also known as the one-week repo auction rate, to 35% during its October meeting.
Notwithstanding this encouraging development, the MPC expressed concern in its statement about the level of domestic demand that is currently in place, the continuation of the inflationary pressure on services, and the ongoing geopolitical risks that drive up inflation.
The committee also observed improvements in pricing behaviour and inflation expectations, highlighting the fact that the current degree of monetary tightening is getting close to the cutoff point required to create a trajectory toward deflation.
“Accordingly, the pace of monetary tightening will slow down and the tightening cycle will be completed in a short period of time,” it said, Arab News reported.
It declared that it will continue to tighten monetary policy for as long as necessary to guarantee long-term price stability and enhance the macro- and macroprudential framework.
The committee anticipated that regulations encouraging Turkish lira deposits, in conjunction with ongoing monetary tightening, would strengthen the transmission mechanism and improve the funding composition of the banking system, even though lending rates are thought to be in line with the targeted financial tightness.