The Central Bank of Türkiye (CBRT) has announced a notable increase in its policy rate, raising it by 500 basis points to 35 percent during its latest Monetary Policy Committee (MPC) meeting.

The decision to raise the interest rate, widely anticipated in financial markets, marks a significant adjustment from the previous rate of 30 percent, now bringing it to 35 percent, aligning with market expectations.

The Monetary Policy Committee of the CBRT has taken this step to address inflation concerns and promote economic stability. In their statement, the bank explained the decision: "The Committee decided to continue the monetary tightening process to establish the disinflation course as soon as possible, anchor inflation expectations, and control the deterioration in pricing behavior."

The CBRT recognized that inflation readings in the third quarter exceeded expectations, driven by factors such as tax regulations, cost pressures stemming from wages and exchange rates, as well as the persistent strength of domestic demand. These factors, in addition to a slow decline in inflation expectations, have kept upward pressure on inflation.

The statement also noted potential risks to the inflation outlook due to geopolitical developments, particularly oil prices, emphasizing the importance of their tightening process to achieve disinflation by 2024.

The bank stated: "The policy rate will be determined in a way that will create monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation and to reach the 5 percent inflation target in the medium term. Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in inflation outlook is achieved."

Furthermore, the CBRT is focused on strengthening market mechanisms and enhancing macro financial stability. The committee plans to simplify and improve the existing micro- and macroprudential framework to enhance the transmission mechanism and, in conjunction with the policy rate increase, make decisions on quantitative tightening and selective credit tightening to support the monetary policy stance.

The CBRT's statement highlighted its commitment to monitoring inflation indicators and underlying trends closely, using all available tools to achieve its primary goal of price stability. This move underscores Turkey's commitment to addressing inflation and maintaining economic stability. (ILKHA)