INSTANBUL (Turkey): Turkish Central Bank kept its benchmark interest rate unchanged for a second month on Thursday, as President Recep Tayyip Erdogan’s government struggles to contain price surges that could threaten his two-decade rule.
Rising living costs are already sapping Recep Tayyip Erdoğan’s political support ahead of the 2023 national elections.
The Monetary Policy Committee held its one-week repo rate at 14% as forecast by all 22 analysts surveyed by Bloomberg.
Turkish inflation climbed to 48.7% last month, pushing the nation’s yield when adjusted for inflation to almost -35%, the lowest by far among emerging market peers.
As Turkey’s inflation rate climbs, workers strike for pay hikes, the lira was little changed and trading 0.2% lower at 13.6278 per dollar at 2:45 p.m. local time.
Just ahead of Thursday’s decision, Erdogan said “debate over interest rates has subsided significantly and exchange rates stabilized.” Now “it’s time to pull inflation back to single digits,” he said.
Turkey’s aggressive rate cuts in late 2021 fueled a collapse in the lira, leaving the nation more exposed than peers to recent global price shocks. Erdogan is prioritizing growth at a time many emerging market peers are tightening monetary policy to counter price gains, reasoning – in a departure from economic orthodoxy – that higher borrowing costs fuel inflation.
The decision is a compromise between economic conditions that warrant a tightening and the government’s insistence on low rates. With hikes politically infeasible, we see the main policy rate unchanged this year. The CBRT may rely on alternative instruments to meet the conflicting goals of stabilizing the lira and stimulating the economy.
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