MNI CBRT WATCH: Turkey CenBank Springs 500Bps Hike Surprise

The Central Bank of the Republic of Turkey raised its one-week repo rate by 500 basis points to 50% after February’s higher-than-expected trend inflation, it said on Thursday.

The CBRT’s Monetary Policy Committee also adjusted its operational framework by setting the Central Bank overnight borrowing and lending rates 300 basis points below and above the one-week repo auction rate, respectively, it said.

Policymakers had been expected to keep rates on hold until after end-March local elections, despite price growth picking up to almost 70% last month, though with at least one more hike later this year. (See MNI CBRT WATCH: Policy Likely On Hold, But More Hikes Expected)

Services remain a key inflation driver, with domestic demand still “resilient,” the CBRT said. Inflation expectations, geopolitical risks, and food prices are also feeding inflationary pressures.

“In response to the deterioration in the inflation outlook, the Committee decided to raise the policy rate,” the bank said in a statement, adding that further tightening can be expected if necessary.

“The decisiveness regarding tight monetary stance will bring down the underlying trend of monthly inflation through moderation in domestic demand, real appreciation in Turkish lira, and improvement in inflation expectations. Consequently, disinflation will be established in the second half of 2024.” (See MNI INTERVIEW: Turkey QT May Only Delay Rate Hikes- Kara)