Turkish central bank says tight policy to be sustained, inflation spike temporary

Turkey’s central bank said it would maintain its tight monetary policy after increasing interest rates to 15 percent from 10.25 percent last week.

The monetary policy stance is needed to tackle inflation, the central bank said on Thursday in a statement outlining its reasoning for the decision to hike rates on Nov. 19.

“Tightness of monetary policy will be decisively sustained until a permanent fall in inflation is achieved,” the central bank said.

Turkey’s central bank is seeking to rebuild its reputation with investors after President Recep Tayyip Erdoğan sacked and replaced its governor on Nov. 7 following a slump in the lira’s value. The bank had maintained interest rates at below the annual inflation rate, which stands at 11.9 percent, to help the government engineer a borrowing boom, leading to lira selling by investors and deposit holders.

The central bank said that it expected inflation to accelerate in November, but it added that monetary policy steps would mean the spike would be temporary.

“While tracked data for November point to an increase in inflation due to the recent exchange rate volatility, this is assessed to be temporary with the decisive monetary policy stance,” the bank said.

The central bank's Monetary Policy Committee is due to meet on interest rates again on Dec. 24.