Introduction

The monetary tightening process, which began last month with a sharp post-election rate hike, is expected to continue until a significant improvement is achieved in the inflation outlook, Türkiye’s central bank said Monday.

June 22 Policy Meeting

The guidance was given in minutes of the bank’s June 22 policy meeting, where it hiked its main interest rate by 650 basis points to 15%.

Policy Reversal

After a two-year easing cycle, the Central Bank of the Republic of Türkiye (CBRT) said the policy reversal was the first step of a tightening process initiated to establish disinflation as soon as possible.

Importance of Price Stability

“The deterioration in price stability threatens macroeconomic stability and especially financial stability. Accordingly, the committee decided to implement a monetary tightening process, the steps of which are gradually strengthened when and as necessary,” the central bank said.

Continuation of the Monetary Tightening Process

“The monetary tightening process is expected to continue until a significant improvement is achieved in the inflation outlook,” it said in a Turkish version of minutes of its monetary policy committee meeting.

New Governor’s Role

The rate hike came in the first policy meeting under the new Governor, Hafize Gaye Erkan. Before that, the one-week repo rate had dropped to 8.5% from 19% in 2021.

Inflation Statistics

Annual inflation fell below 40% in May after touching a 24-year high above 85% in October last year.

Challenges in Achieving Inflation Target

“The committee evaluated that the current monetary policy framework is far from achieving the 5% inflation target, given the inflation outlook and upside risks,” the bank said.