A teller counts banknotes at an exchange office in Ankara, Türkiye, on Dec. 21, 2023. Türkiye's central bank on Thursday delivered a seventh consecutive rate hike to beat double-digit inflation, signaling an impending end to the tightening cycle that has become the hallmark of a policy reversal, experts said. (Photo by Mustafa Kaya/Xinhua)
by Burak Akinci
ANKARA, Dec. 21 (Xinhua) -- Türkiye's central bank on Thursday delivered a seventh consecutive rate hike to beat double-digit inflation, signaling an impending end to the tightening cycle that has become the hallmark of a policy reversal, experts said.
During the last meeting of the year, the Monetary Policy Committee, led by Governor Hafize Gaye Erkan, lifted the benchmark one-week repo rate from 40 percent to 42.5 percent, in line with most forecasts.
In a note explaining the decision, the bank said that "as monetary tightness is significantly close to the level required to establish the disinflation course, the Committee reduced the pace of monetary tightening."
It also said that the bank "anticipates to complete the tightening cycle as soon as possible," implying that there will be one more rate hike in January.
The tightening cycle, which began in June, represents an ongoing effort to stop prices from rising and has brought the policy rate from 8.5 to 42.5 percent.
Senol Babuscu, a professor of finance from Ankara's Baskent University, said the bank's decision was anticipated.
"We may expect a final rate hike in January that would complete the tightening cycle," he told Xinhua, adding that the policy rate would then likely remain unchanged for much of 2024.
The economist pointed out that monetary policy alone could not reduce inflation, at least not just by increasing interest rates, and emphasized the need for structural reforms to strengthen the Turkish economy.
Hakan Kara, a scholar at Ankara's Bilkent University and former chief economist of the central bank, said that the final rate hike in January would close the tightening cycle intended to cool domestic demand and rein in stubborn inflation.
Following the rate hike in January, the policy rate will likely remain at this level until at least the third quarter of next year, Kara wrote in a post on social media platform X, formerly known as Twitter.
Turkish President Recep Tayyip Erdogan has long been a proponent of lowering interest rates to fight inflation.
However, following his victory in the May presidential election, he appointed a new economic team led by Treasury and Finance Minister Mehmet Simsek. The team swiftly raised interest rates in an attempt to curb runaway inflation, reversing the previous low interest rate policy.
In November, consumer prices rose slightly to 61.9 percent year-on-year after a 61.3-percent annual increase in October. The increase was largely fuelled by the depreciation of the Turkish lira.
The Turkish central bank expects inflation rate to peak at 70-75 percent in May, before dipping to about 36 percent by the end of 2024.
Nonetheless, some analysts believe that the forecast for 2024 is overly optimistic.
"After the expected annual inflation rate of 75 percent in May, it is almost impossible to reduce it to 36 percent at the end of 2024," economist Alaattin Aktas said in a column for economim.com, a digital business website.
He argued that the year-end inflation would be higher than expected, and therefore households have to wait until 2025 to witness a respite from painful price increases as monetary orthodoxy sets in.
Türkiye's economy expanded by a more-than-expected 5.9 percent in the third quarter, driven by household spending, official data showed this month, but economic activities are expected to slow down after the monetary tightening, analysts say. ■
A man withdraws money from an ATM in Ankara, Türkiye, on Dec. 21, 2023. Türkiye's central bank on Thursday delivered a seventh consecutive rate hike to beat double-digit inflation, signaling an impending end to the tightening cycle that has become the hallmark of a policy reversal, experts said. (Photo by Mustafa Kaya/Xinhua)
