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Turkish Central Bank Holds Interest Rate at 46% Despite Inflation Risks
The Central Bank of Turkey has decided to maintain its benchmark interest rate at 46% following the Monetary Policy Committee meeting held on Thursday. Meanwhile, the overnight lending rate was kept steady at 49%, contrary to market expectations of a potential cut.
This move comes after an unexpected rate hike of 350 basis points in April, when the central bank raised the key rate from 42.5% to 46% in a bid to counter mounting inflationary pressures and stabilize the Turkish lira, which had suffered sharp losses following the sentencing of Istanbul’s mayor, Ekrem İmamoğlu — a prominent rival of President Recep Tayyip Erdoğan.
Lira Weakness and Rising Inflation Risks
The Turkish lira continues to face significant pressure amid escalating geopolitical tensions, particularly the threat of a broader conflict between Israel and Iran. These tensions have contributed to a sharp rise in global oil prices, adding further strain on Turkey's inflation outlook. The central bank had previously forecast inflation to ease to 24% by year-end, but recent developments have cast doubt on this projection.
Lending Rates Remain High Despite No Change
Although the central bank opted to hold the policy rate, data shows that Turkish banks had been borrowing at nearly 49% since mid-April. This was later reduced to 46% last week, reflecting an ongoing tight monetary policy stance aimed at addressing both currency volatility and domestic inflation.
The Road Ahead: Tight Policy vs. Economic Growth
The key question now is how long Turkey can sustain such high interest rates without stifling economic growth and investment flows. Investors are closely watching for any forward guidance, as Turkey’s monetary policy remains a delicate balancing act between currency stabilization and price control.
