Turkey’s central bank holds its policy rate at 14% despite soaring inflation
May 26 2022 09:44 PM
RELATED STORIES
A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul. The currenc
A money changer counts Turkish lira banknotes at a currency exchange office in Istanbul. The currency has declined 11% since the previous monetary policy meeting and is down some 19% this year.

Reuters / Istanbul

Turkey’s central bank kept its policy rate at 14% for a fifth straight month on Thursday as expected, even with inflation set to rise beyond the current 70% as a fresh slide in the lira threatens to stoke prices further.
The bank defended its policy decision saying it expects disinflation to start, citing base effects and an expected end to the conflict between Russia and Ukraine among other factors.
“The Committee expects disinflation process to start on the back of strengthened measures for sustainable price and financial stability,” the bank said in its statement following its monthly monetary policy committee meeting.
The lira, which has tumbled this year on top of a 44% slide last year, weakened a further 0.4% to 16.4220 against the dollar by 1241 GMT.
“It’s more likely that policymakers turn to capital controls and more strident liraisation efforts in the event of further pressure on the lira,” said Capital Economics senior emerging markets economist Jason Tuvey.
In April, Turkey’s annual inflation jumped to a two-decade high of 69.97%, fuelled by last year’s lira crash due to a series of unorthodox rate cuts, and by soaring commodity prices due to Russia’s invasion of Ukraine. The latest central bank data also gave cause for concern, with net international reserves dropping to $9.56bn in the week to May 20, bringing their decline since mid-April to nearly $10bn.
The bank has used its reserves to slow the lira’s slide through direct interventions in the currency market in the past, and has met the market’s need for forex through its reserves in recent months.
The reserves are in deeply negative territory when outstanding swaps are deducted.
The bank cut its policy rate by 500 basis points at the end of last year as inflation rose.
The lira has declined 11% since the previous monetary policy meeting and is down some 19% this year, further raising prices due to Turkey’s heavy import bill.
The country’s five-year credit default swaps (CDS), the cost of insuring against default, also jumped to 730 basis points from 580 since last month’s meeting.
War-related sanctions on Russia have meanwhile sent gas and oil prices soaring, lifting prices for import dependent Turkey.
All 15 economists in a Reuters poll expected the bank to leave its benchmark rate unchanged this week.
Two of eight economists expected the bank to reverse policy later this year and hike rates due to price pressures and lira weakness.



There are no comments.

LEAVE A COMMENT Your email address will not be published. Required fields are marked*
MORE NEWS

HAPPENING IN DOHAMore