Turkish Central Bank raises policy rate 250 basis points to 17.5%

In the recent announcement by the Central Bank of the Republic of Türkiye (CBRT) concerning interest rates, it was declared that the Monetary Policy Committee (MPC), headed by Central Bank Governor Hafize Gaye Erkan, has opted to raise the policy rate to 17.5 percent.

The statement included the following key points:

The Committee decided to maintain the process of monetary tightening in order to achieve disinflation at the earliest, anchor inflation expectations, and control the disruptions in pricing behavior.

While global inflation is declining, it still remains higher than the long-term averages and the targets set by central banks. Consequently, central banks in various countries across the world are continuing with the process of monetary tightening.

In Türkiye , recent indicators indicate a continued upward trend in inflation. This development is influenced by strong domestic demand, cost pressures arising from wages and exchange rates, and the inflexibility in service-related inflation. Additionally, the Committee foresees that deteriorations in tax regulations and pricing behavior will further negatively impact inflation.

The current account will experience a robust balancing effect with support from foreign direct investments, significant improvements in external financing conditions, ongoing reserve increases, and tourism revenues, all of which will contribute significantly to price stability.

The policy rate will be set in a manner that aims to decrease the underlying inflation trend and create the monetary and financial conditions necessary to reach the 5 percent inflation target in the medium term. The process of monetary tightening will be gradually strengthened as needed until a significant improvement in the inflation outlook is achieved.

The Board is streamlining the existing micro- and macroprudential framework to enhance market mechanisms' functionality and bolster macro financial stability. This simplification process will be carried out gradually, taking into consideration impact analyses. In this context, the Board has also made decisions on selective credit and quantitative tightening to support the monetary tightening process, in addition to the interest rate increases.

Indicators related to inflation and the underlying inflation trend will be closely monitored, and the Board will persistently employ all available tools to ensure price stability, which remains its primary objective.

The Board will continue to make decisions in a transparent and predictable manner, grounded in data and oriented towards achieving its goals.