Financial News: Turkey Unexpectedly Lifts Rate By 350 Bps

Turkey Unexpectedly Lifts Rate By 350 Bps

04/17/2025 - 09:54:00 (RTTNews)

(RTTNews) - The Turkish central bank raised its key interest rate in a surprise move on Thursday, reversing the sharp easing cycle that began last December, and also expressed preparedness to keep the policy tight.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey, headed by Yasar Fatih Karahan, decided to raise the policy rate to 46.0 percent from 42.5 percent.

The bank had reduced the rate by 250 basis points each in December, January and March.

The MPC also increased the overnight lending rate by 300 bps to 49 percent, after raising it by 200 bps in an emergency meeting last month as the arrest of opposition leader Ekrem Imamoglu triggered a major sell-off in the stock market and currency. Today, the overnight borrowing rate was also lifted to 44.5 percent from 41 percent.

"The decisiveness regarding tight monetary stance is strengthening the disinflation process through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations," the bank said.

"Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen," the bank said.

With inflation still likely to remain on a downward trajectory over the coming months, further monetary tightening is unlikely, Nicholas Farr, an economist at Capital Economics said.

However, it is clear that the central bank's easing cycle has hit a major roadblock, and it could take some time before the easing cycle is restarted, the economist noted.

ING economist Muhammet Mercan said inflation is set to increase slightly in April following the recent exchange rate developments and the 25 percent electricity hike. Until the June meeting, the central bank will likely monitor demand for TRY assets and reserve changes and determine the timing for the resumption of rate cuts to normalize high ex-post real rates, given rising risks to the growth outlook, Mercan added.

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