Turkish Central Bank Slows Pace Of Tightening

(RTTNews) - Turkey's central bank raised its benchmark rate by 250 basis points on Thursday to combat high inflation but the pace of tightening was reduced as policymakers assessed that it is close to the level required to establish the disinflation course.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey, or CBRT, governed by Governor Hafize Gaye Erkan, decided to raise the one-week repo auction rate by 250 basis points to 42.5 percent. Previously, the central bank had raised the rate by 500 basis points each in September, October and November.

Tweaking their guidance on future rate path, the bank said, "The Committee anticipates to complete the tightening cycle as soon as possible."

The bank stated that the monetary tightness will be maintained as long as needed to ensure sustained price stability.

Capital Economics' economist Nicholas Farr said the bank will hike the rate by one more 250 basis points at the next meeting in January.

The economist said policymakers will need to keep interest rates high for an extended period if they want to bring inflation down to single digits.

ING economist Muhammet Mercan also said the bank is set to end the hiking cycle next month with a 250 bps hike.

The economist said inflation is likely to remain elevated until mid-2024, with further increases above 70 percent on seasonal effects in January and unfavorable base effects in May.

Inflation is set to see a sharp downtrend reflecting this year's high base and the further impact of tighter policy, pulling inflation down to 40-45 percent at year-end, Mercan noted.

The committee noted that the existing level of domestic demand, stickiness in services inflation and geopolitical risks keep inflation pressures alive.

The current inflation rate was 61.98 percent in November, which was the highest in nearly a year. The central bank aims to bring inflation to 5 percent in the medium term.