Turkey’s Central Bank Breaks Upward Cycle
Fatih Karahan, the new governor of the Central Bank of Turkey: “We are determined to maintain the necessary tightening of monetary policy until inflation falls to a level compatible with our objective.” However, the prime rate remains at an exorbitant 45 percent
A few weeks after the resignation of former Turkish Central Bank Governor Hafizeh Gaye Erkan, the regulator reaffirmed the interest rate at 45%, thus interrupting the hike cycle that began in June 2023. The last rate hike was announced by the Central Bank in January, when it unexpectedly rose from 42.5% to 45%.
On February 3, 2024, Turkish President Recep Tayyip Erdogan appointed Fatih Karahan as the governor of the country’s Central Financial Institute. And on February 22, the Board of Directors of the Central Bank of Turkey, after assessing the country’s current financial situation, concluded that the current prime rate level is more than sufficient and that it will be maintained until a significant and permanent reduction in the underlying trend of monthly inflation is achieved.
If consumer price growth in Turkey “accelerates,” monetary policy will be tightened further.
In early February, the Turkish Central Bank left its inflation forecast for the end of 2024 unchanged, predicting two “slowdowns” in price dynamics for this year and 2025: from the current 64.86% to 36%, and 14% by the end of next year.
“We are determined to maintain the necessary tightening of monetary policy until inflation falls to a level compatible with our objective. We closely monitor inflation expectations and price trends. We will certainly not allow any deterioration in the inflation forecast,” Karahan told reporters. “Although the policies we are implementing are starting to yield results,” Turkey’s central bank governor added, “we will maintain our position until we achieve permanent price stability, which will lead our economy to stability in the medium term.”