Turkey keeps interest rates on hold at 50% even as inflation soars

ANKARA — Turkey’s Central Bank held interest rates steady on Thursday, despite ongoing soaring inflation.

The Monetary Policy Committee left the rate at 50%, as Turkey’s year-on-year inflation hit more than 75% last month.

The decision, part of a pause in monetary tightening since April, had been predicted by economists in a Bloomberg poll released earlier this week.

The Monetary Policy Committee, in explaining its decision, cited a slowdown in domestic demand. “Recent indicators confirm that domestic demand, albeit still at inflationary levels, continues to slow down,” the committee said in a statement. “In addition to the high level of and the stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflationary pressures alive.”

The bank ruled out rate cuts until signs of “a significant and sustained decline in the underlying trend” of monthly inflation, and it reiterated its pledge to resume monetary tightening in the event of a “significant and persistent deterioration in inflation.”

As Turkey faces one of the worst cost-of-living crises in its history, the Central Bank raised borrowing costs from 8.5% to 50% in an aggressive run of hikes between June and March as part of President Recep Tayyip Erdogan’s return to orthodox economic policies. Before being reelected in May 2023, Erdogan had insisted on keeping interest rates stubbornly low despite soaring inflation. 

Turkey’s year-on-year inflation surged last month to 75.45%, while consumer prices rose 3.37%, according to data released by the Turkish Statistical Institute. The Central Bank revised its year-end projections on inflation from 36% to 38% in May.