Turkey’s central bank: Policy response to the fear of inflation rising again
2023-12-06
■ In November, the Consumer Price Index (CPI) increased by 61.98% year-on-year, setting a new record for the highest rate of increase since 2023.
■ Will the Central Bank of the Republic of Turkey (CBRT) mention the end of the interest rate rise cycle when there is concern about inflation rising again?
On the 30th of last month, Turkey’s statistics bureau announced the real gross domestic product (GDP) of the quarter from July to September increased by 0.3% year-on-year, slowing down compared with the previous period (the same 3.5% → the same 3.3%, down). Against the backdrop of inflation and rising interest rates, personal consumption decreased by 1.7% year-on-year, a decrease from the previous period (an increase of 4.7%). In addition, government spending increased by 1.8% year-on-year, a slowdown from the previous period (an increase of 2.8%). On the other hand, the announced increase rate of the Consumer Price Index (CPI) in November was 61.98% year-on-year, slightly expanding and higher than the previous month (61.36%), setting a higher rate of increase since December 2022 (64.27%). Moreover, in addition to the volatile core indices of energy, food, beverages (including alcohol), tobacco, and gold, they also accelerated to 69.89%.
In May of this year, the Erdogan government, as a temporary measure up to May 2024, provided 25 cubic meters of household natural gas for free per month. Most of Turkey’s energy depends on imports. Some people believe that the inland and eastern regions will face severe colds, and household natural gas consumption will increase. In addition, President Erdogan is expected to introduce more economic support measures, including raising the minimum wage again to support the upcoming local elections in March 2024.
The Central Bank of the Republic of Turkey (CBRT) raised the policy interest rate by 5.0% at the monetary policy decision-making meeting on the 23rd of last month and indicated the possibility of ending the interest rate-raising cycle. In the inflation report released on the 2nd of the same month, it was predicted that the CPI inflation rate would peak at 75% in May 2024 and drop to 36% by the end of the year. At the meeting on the 21st of this month, the market expected a slight increase in the weekly lending rate of the main policy rate from 40.0%. However, President Erdogan is dissatisfied with the highest policy interest rates in the past, and if he puts pressure on CBRT to stop raising rates, the independence of the central bank will be threatened. There are still concerns that the surge in demand caused by fiscal expenditure may push inflation again, and the signs of preventing the devaluation of Turkey’s lira do not appear yet.
■ Will the Central Bank of the Republic of Turkey (CBRT) mention the end of the interest rate rise cycle when there is concern about inflation rising again?
On the 30th of last month, Turkey’s statistics bureau announced the real gross domestic product (GDP) of the quarter from July to September increased by 0.3% year-on-year, slowing down compared with the previous period (the same 3.5% → the same 3.3%, down). Against the backdrop of inflation and rising interest rates, personal consumption decreased by 1.7% year-on-year, a decrease from the previous period (an increase of 4.7%). In addition, government spending increased by 1.8% year-on-year, a slowdown from the previous period (an increase of 2.8%). On the other hand, the announced increase rate of the Consumer Price Index (CPI) in November was 61.98% year-on-year, slightly expanding and higher than the previous month (61.36%), setting a higher rate of increase since December 2022 (64.27%). Moreover, in addition to the volatile core indices of energy, food, beverages (including alcohol), tobacco, and gold, they also accelerated to 69.89%.
In May of this year, the Erdogan government, as a temporary measure up to May 2024, provided 25 cubic meters of household natural gas for free per month. Most of Turkey’s energy depends on imports. Some people believe that the inland and eastern regions will face severe colds, and household natural gas consumption will increase. In addition, President Erdogan is expected to introduce more economic support measures, including raising the minimum wage again to support the upcoming local elections in March 2024.
The Central Bank of the Republic of Turkey (CBRT) raised the policy interest rate by 5.0% at the monetary policy decision-making meeting on the 23rd of last month and indicated the possibility of ending the interest rate-raising cycle. In the inflation report released on the 2nd of the same month, it was predicted that the CPI inflation rate would peak at 75% in May 2024 and drop to 36% by the end of the year. At the meeting on the 21st of this month, the market expected a slight increase in the weekly lending rate of the main policy rate from 40.0%. However, President Erdogan is dissatisfied with the highest policy interest rates in the past, and if he puts pressure on CBRT to stop raising rates, the independence of the central bank will be threatened. There are still concerns that the surge in demand caused by fiscal expenditure may push inflation again, and the signs of preventing the devaluation of Turkey’s lira do not appear yet.