Turkey raises interest rate by 500bps to 'anchor inflation'

In a bid to curb rampant inflation, Turkey's central bank Thursday raised policy rate by 500 basis points to 50%, a move that stunned the market.

As per the statistics, Turkey’s annual inflation swelled to 67.07% in February from 64.86% in the previous month.

In a statement, the central bank said: "Tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range.”

“Monetary policy stance will be tightened in case a significant and persistent deterioration in inflation is foreseen."

It is pertinent to mention here that the bank has projected 36% inflation at the end of this year and 14% for next year.

To reinforce the tightening move, the bank also adjusted its policy operational framework, setting the overnight borrowing and lending rates 300 basis points below and above the repo rate.

Reacting to the bank’s decision, Piotr Matys, senior FX analyst at In Touch Capital Markets in London, said that the rate hike "stunned the market."

Reuters quoted him as saying: "Today's decision is a very strong signal that Governor (Fatih) Karahan, who took over from (Hafize Gaye) Erkan when she unexpectedly resigned, is determined to bring staggeringly high inflation under control."