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Turkey's Central Bank Cuts Interest Rates by 150 Basis Points, Ending Easing Cycle

Turkey's central bank on Thursday cut interest rates by 150 basis points to 9% and decided to end its cycle of monetary policy easing. The bank cited increased inflation risks as the reason for the decision.

November 24, 2022
5 minutes
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Turkey's central bank on Thursday cut interest rates by 150 basis points to 9% and decided to end its cycle of monetary policy easing. The bank cited increased inflation risks as the reason for the decision.

The Central Bank of the Republic of Turkey (CBRT) has been under pressure from President Recep Tayyip Erdogan to keep interest rates low, despite high inflation. In October, inflation hit 85.5% year-on-year, driven by rising food and energy prices.

The central bank has announced that it is ending the cycle of interest rate cuts that began in August, citing increased risks in the global economy. In a statement, the bank said that it believes the current policy rate is adequate in light of these risks.

Erdogan has continued to insist that raising interest rates would harm the Turkish economy, an insistence economists suggest has caused a significant devaluation of the lira currency and driven inflation higher. The president has repeatedly stated his aim of getting the country’s interest rate down to single digits by the end of this year.

The central bank has said that while the negative consequences of supply constraints in some sectors have been alleviated by the strategic solutions facilitated by Türkiye, the upward trend in producer and consumer prices continues on an international scale.

The rise in global inflation is closely monitored by central banks in advanced economies. They emphasize that the rise in inflation may last longer than previously anticipated due to high level of energy prices, imbalances between supply and demand, and rigidities in labor markets.

The Central Bank of the Republic of Turkey (CBRT) is currently reviewing its policy framework, with a focus on the “liraization” of its financial system. In a report released Thursday, the CBRT stated that it would continue to use all available instruments within the framework of this strategy until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved.

The Central Bank of Turkey (CBRT) has said that stability in the general price level will help to foster macroeconomic stability and financial stability. This will be achieved through a fall in the country risk premium, the continuation of the reversal in currency substitution, and an upward trend in foreign exchange reserves. This will in turn lead to a durable decline in financing costs.

A healthy and sustainable foundation for investment, production and employment growth can be created by taking action to improve the economy. This would help to ensure that businesses can continue to thrive and create jobs. Taking steps to improve the economy would also encourage more people to invest in businesses and help to create a more stable financial future for everyone.

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Cathy Hills
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