An electronic board displays exchange rate information at a currency exchange bureau in Istanbul, Turkey, Monday, August 29, 2022.

Nicole Tung | Bloomberg | Getty’s image

Turkey’s central bank on Thursday cut interest rates by 150 basis points to 9% and decided to end the monetary policy easing cycle, citing rising inflation risks.

CBRT [Central Bank of the Republic of Turkey] has been under consistent pressure from President Recep Tayyip Erdogan to continue cutting interest rates despite soaring inflation, which hit 85.5% year-on-year in October as food and energy prices continued to soar.

“Given the increasing risks related to global demand, the Committee judged that the current policy rate was adequate and decided to end the rate cut cycle that started in August,” the central bank said in a statement.

Erdogan has continued to insist that raising interest rates, in line with central banks around the world, would hurt Turkey’s economy, a insistence that economists say has led to a significant devaluation of the lira currency and pushed inflation higher. The president has repeatedly stated his goal of lowering the country’s interest rate to single digits by the end of this year.

“While the negative consequences of supply constraints in some sectors, especially staple foods, have been mitigated by the strategic solutions facilitated by Türkiye, the upward trend of producer and consumer prices has continued on an international scale,” the central bank said.

“The effect of high global inflation on inflation expectations and international financial markets is being closely monitored. In addition, central banks in developed countries emphasize that the rise in inflation may last longer than previously thought due to high energy prices, the imbalance between supply and demand, and rigidity in the labor market,” he added.

The CBRT is reviewing its policy framework, focusing on the “liraisation” of its financial system and said in its report Thursday that it would “continue to use all available instruments” within this strategic framework until “strong indicators suggest a permanent reduction in inflation and a medium-term target of 5 percent is achieved.” “

“Stability at the general price level will promote macroeconomic stability and financial stability through a reduction in the country’s risk premium, continued reversals of currency substitution and the trend of increasing foreign exchange reserves, and a lasting reduction in financing costs,” CBRT said.

“This will create a viable foundation for investment, production and employment to continue to grow in a healthy and sustainable manner.”

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