The Central Bank of the Republic of Turkey (TCMB) has announced its eagerly awaited interest rate decision. Having kept the policy rate steady at 45% in its previous meeting, the TCMB has now increased the policy rate to 50% as part of its ongoing efforts to combat inflation.
TCMB Delivers a Surprise
The Central Bank, which was expected to maintain the policy rate but indicated a “wait-and-see” approach in its communication, unexpectedly raised the policy rate by 500 basis points from 45% to 50%. The Central Bank had decided to keep the policy rate at 45% in its previous meeting, and economists were predicting that the policy rate would remain at this level for some time.
Furthermore, the Central Bank increased the overnight borrowing rate from 43.50% to 48.50%, and the overnight lending rates from 46.50% to 51.50%.
As Experts Anticipated
While economists’ median year-end policy rate expectation was set at 45%, the Central Bank’s additional tightening steps are also being closely monitored.
The Central Bank recently raised the interest rate for cash withdrawal transactions from credit cards and overdraft accounts, and took new steps aimed at increasing the share of Turkish lira deposits. In particular, changes were made to the calculation method of the maximum monthly contractual interest rate applied to cash advance transactions on credit cards and overdraft accounts, raising the interest rate from 4.42% to 5%.
Marek Drimal, Societe Generale’s Strategist for Central and Eastern Europe, the Middle East, and Africa, had anticipated that the TCMB could prevent direct tightening by raising interest rates, and assessed that possible interest rate hikes in this and future meetings could be 250 or 500 basis points. Drimal expects the TCMB to maintain its interest rate policy steady for the remainder of 2024 after the anticipated hike, but predicts a 500 basis point cut in the first quarter of 2025.
Piotr Matys, Senior FX Analyst at In Touch Capital Markets, had stated that the TCMB would keep the policy rate steady at 45% without change, but also suggested that the bank might tighten its monetary policy further in the coming months if inflation were to increase.
