ISTANBUL, Aug 24 (Reuters) – Turkey’s central bank on Thursday raised its key interest rate by 750 basis points above expectations to 25%, sparking a rare rally in the lira and renewing its resolve to deal with an inflationary rebound as part of inflation. showed that. A U-turn on a broader policy.
The unexpected move kept policy rates at their highest level since 2019 and sent the Turkish currency to its strongest level since mid-July. The bank has raised its one-week repo rate (TRINT=ECI) by 1,650 basis points since June.
The policy committee, which includes three members joining for the first time and is seen as having hawkish influence, will act “as timely and incrementally as necessary” to curb inflation, which climbed to nearly 48% last month. I repeated that I would tighten.
Analysts say the move is the clearest step so far toward more orthodox policies after years of unorthodox policies under President Tayyip Erdogan and should help curb inflation expectations. said.
The lira hit all-time lows almost every day in recent weeks, including in the minutes before the policy decision. However, it has since risen more than 3% against the dollar to $26.41 at 1205 GMT.
Turkish bank stocks rose nearly 10%, boosting the Istanbul stock exchange overall, while dollar-denominated government bonds rose more than 2 cents, according to Tradeweb data.
The median forecast of economists is 250 basis points (bp) from 17.5% previously, according to a Reuters poll, a more dovish move after the bank has underperformed in the past two months. There were people too.
A poll last week showed interest rates were not expected to rise to 25% by the end of the year.
Piotr Matisse, senior forex analyst at In Touch Capital Markets, said the rate hike “provides a very strong signal that (banks) are determined to keep inflation under control, and the initial market reaction is It’s very forward-looking,” he said.
“But at least some investors will question whether the 750 basis point rate hike was approved by President Erdogan.”
turn around
Erdogan appointed former Wall Street banker Hafidze Gay Elkann as central bank governor in June after being re-elected in May, as the economy was weighed down by depleted foreign exchange reserves and soaring inflation expectations.
In July, he appointed three new policymakers — Osman Cevdet Akchai, Fatih Karahan and Hatice Karahan — to the central bank, pushing inflation well above its official 5% target for years. gave fresh indications that independent economists would be more forceful.
Erdogan’s past push for rate cuts sparked a currency crisis at the end of 2021, pushing inflation past 85% last year. With currency depreciation, annual consumer prices are expected to rise to about 60% by the end of the year.
The central bank said rising oil prices and deteriorating inflation expectations suggested inflation would end the year at the high end of expectations. Still, he added, “disinflation will be established in 2024.”
The currency has fallen about 68% in two years, largely because Erdogan has so far opposed high interest rates and influence over the central bank. This summer saw another crash as Ankara’s new economic team began loosening state control over the foreign exchange market and removing unorthodox policies and regulations.
Central banks have also selectively tightened credit. Over the weekend, it began rolling back a costly scheme to protect lira deposits from currency depreciation, adopted to prevent a currency crash in the second half of 2021.
Additional reporting by Ezgi Erkoyun and Ece Toksabay.Editing: Christina Fincher and Angus Maxwan
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