Turkey lifts key rate for 5th month in inflation battle

AFP, Istanbul :
Turkey’s central bank sharply lifted its policy rate for the fifth month running on Thursday as part of its politically charged battle against historically high inflation rates.

The bank said it was taking its main lending rate to 35 percent from 30 percent because “inflation readings were above expectations” over the past three months.

Its statement also retained a pledge to raise rates further “in a timely and gradual manner” until “a significant improvement in the inflation outlook” is achieved.

Turkey’s official annual inflation rate peaked at 85 percent last October and climbed back up above 60 percent last month.

The interest rate hike was largely in line with expectations and left the lira trading flat at around the 28.15 to the dollar.

“It feels like we will see another two 500 basis point hikes now to year end, with policy rates likely ending at 45 percent,” emerging markets analyst Timothy Ash remarked.

The Turkish bank has now more than quadrupled borrowing costs since President Recep Tayyip Erdogan dropped — or at least put aside — his lifelong objection to the idea that raising interest rates helps fight inflation.

The Turkish leader had entered a difficult May election pledging to never allow the bank to raise its key rate while he was president.

He reversed course after winning and tasking a new team of Wall Street-trained economists with the job of steering Turkey out its worst cost-of-living crisis during Erdogan’s two-decade rule.