ISTANBUL, Turkey, July 20 – Turkey’s central bank hiked its main interest rate for the second month in a row on Thursday in efforts to tame high inflation, further unwinding President Recep Tayyip Erdogan’s unconventional monetary policy.
The rate was raised by 2.5 percentage points to 17.5 percent, but it was a smaller increase than advocated by analysts.
The central bank “decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behaviour,” it said in a statement.
After years of unorthodox economic policies championed by Erdogan, the central bank nearly doubled its key interest last month from 8.5 percent to 15 percent.
The decision came after Erdogan filled his government with investor-friendly faces following his re-election in tight May polls.
The bank said at the time that the move was only the start of a process aimed at bringing Turkey’s annual inflation rate of nearly 40 percent to single figures “as soon as possible”.
The annual inflation rate reached 85 percent late last year and the central bank burned through most of its reserves trying to prop up the lira — down 90 percent against the dollar over 10 years — from even bigger falls.
Both hikes have disappointed analysts and was half of the consensus forecast for a hike of five percentage points.
“Turkey’s central bank today once again underwhelmed expectations and the slow and steady tightening is pushing the limits on what policymakers can get away with,” said Liam Peach, senior emerging markets economist at Capital Economics.
“There are now clearer risks that the policy shift falls short and that the lira comes under much larger downward pressure,” he added.
