Turkey central bank ramps up interest rates to 40%

LONDON (Reuters) – Turkey’s central bank delivered a larger-than-expected 500 basis point interest rate hike on Thursday, lifting its benchmark to 40% but also flagging that the pace of monetary tightening was set to slow down and the end of the cycle was in sight.

Below reaction from analysts to the decision:

LIAM PEACH, CAPITAL ECONOMICS, LONDON

“(Turkey’s central bank) suggested that it is very close to the end of the tightening cycle. A final 250bp hike in December now looks likely. For the central bank to have any chance of achieving single digit inflation this decade, rates will need to stay at this level for some time.”

“The past month has brought further signs that Turkey’s economy is rebalancing in response to the policy U-turn in May. Credit growth has slowed, retail sales have weakened and the current account deficit has narrowed. Inflation pressures have cooled too and inflation expectations have started to fall.”

BARTOSZ SAWICKI, CONOTOXIA FINTECH, WARSAW

“In October the annual inflation rate inched lower and external price dynamics have turned a tad more favourable. At the same time, the macroeconomic backdrop remains extremely challenging. The risk of a sharp slowdown in activity points to less aggressive continuation of the tightening cycle. We see the one-week repo peaking around 45%. We expect slower hikes ahead as we get closer to this level and the policy stance became more restrictive.”

“The markets might remain uncertain if further hikes are on the table and fear the (central bank) might opt to pause the tightening until the local elections in March. In this context, the next couple of months will put the (central bank)’s independence and determination to stick to a more orthodox stance to the test.”