Central Bank of Turkey to Maintain Interest Rates Until Fourth Quarter

Turkey’s Central Bank to Maintain 50% Policy Rate Until Q4, Economists Say

ANKARA (Reuters) – Turkey’s central bank is expected to keep its policy rate at 50% until the fourth quarter of this year, according to a recent Reuters poll of economists. The bank raised the rate by 500 basis points in March, following a pause in February, citing concerns over the inflation outlook.

Since June, the central bank has increased borrowing costs by 4,150 basis points, reversing a low-rate policy previously supported by President Tayyip Erdogan to stimulate economic growth.

Policymakers have indicated that a tight monetary policy stance will be maintained until a significant decrease in the underlying trend of monthly inflation is observed. The poll suggests that the rate will be reduced by 250 basis points in the fourth quarter, bringing it down to 47.5%. Further reductions are expected next year, with the rate projected to reach 30.0% by the end of 2025.

Central bank Governor Fatih Karahan recently stated that the rate-hiking cycle is over and that inflation is on track to reach the 36% target by the end of the year. However, economists predict that inflation will average 44.2% this year, higher than the 42.1% forecasted in January.

The recent local elections in Turkey saw Erdogan’s AK Party suffer significant losses, largely attributed to the cost-of-living crisis. The economy is forecasted to grow by 3.0% this year and 3.3% next year, according to the poll of economists conducted in April.