Turkey shocks with big rate hike to 25%, boosting lira
Turkey's central bank raised its key interest rate by 750 basis points to 25%, signaling a stronger determination to address inflation and leading to a rare lira rally in response.
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Posted 8/24/2023, 7:34:06 PM
reuters.com
Relevant topic timeline:
- The Bank of England raised its benchmark interest rate to 5.25% despite a slowdown in consumer-price rises, leading to speculation about when the central bank will end its monetary tightening.
- House prices in Britain fell by 3.8% in July compared to the same month last year, the sharpest decline since July 2009, but the average house price was still higher than earlier this year.
- The Bank of Japan raised its cap on the yield of Japanese ten-year government bonds from 0.5% to 1%, causing the yield to soar to nine-year highs.
- Turkey's annual inflation rate increased to 47.8% in July, the first rise since October, due in part to a new tax on fuel.
- The euro area's economy grew by 0.3% in the second quarter, with much of the growth attributed to changes in intellectual property shifting by multinationals based in Ireland for tax purposes. Germany's GDP growth rate was zero, and Italy's fell by 0.3%.
Turkey's central bank surprises markets by raising interest rates more quickly than anticipated.
The president of the Federal Reserve Bank of Philadelphia believes that the US central bank has already raised interest rates enough to bring inflation down to pre-pandemic levels of around 2%.
Turkey's recent interest rate hike has caught the attention of foreign investors who may consider returning to Turkish assets if the country continues to demonstrate a commitment to orthodox monetary policy and economic stability.
Inflation in Turkey reaches highest level since December 2022, with prices increasing nearly 60% compared to last year, fueled by the depreciation of the Turkish lira and independent economists suggesting consumer prices have risen as much as 128%.
Wall Street banks are revising their outlooks for Turkish interest rates as inflation rises faster than expected, with JPMorgan, Morgan Stanley, and Bank of America suggesting that borrowing costs may need to rise higher or quicker in response to the surge in price growth.
JPMorgan predicts that Turkish interest rates will increase by 10 percentage points in the next two central bank meetings due to fiscal spending plans and higher inflation.
The European Central Bank is expected to maintain interest rates on September 14, although nearly half of economists anticipate one more increase this year in an effort to reduce inflation.
Pakistan's central bank is expected to raise interest rates to address inflation and bolster foreign exchange reserves, following a series of rate hikes earlier this year in response to economic and political crises.
The European Central Bank is facing a dilemma on whether to raise its key interest rate to combat inflation or hold off due to economic deterioration, with investors split on the likelihood of a rate hike.
The European Central Bank has implemented its 10th consecutive interest rate increase in an attempt to combat high inflation, although there are concerns that higher borrowing costs could lead to a recession; however, the increase may have a negative impact on consumer and business spending, particularly in the real estate market.
The European Central Bank has raised key interest rates by 0.25 percentage points to help bring down inflation, although the economy is expected to remain weak for a while before slowly recovering in the coming years.
The European Central Bank has raised its main interest rate for the 10th consecutive time to tackle inflation, but indicated that further hikes may be paused for now, causing the euro to fall and European stocks to rally.
The Russian central bank has raised its key interest rate to 13% in response to inflationary pressures and a weak rouble, and warns that rates will remain high for a considerable period of time, with further rate increases possible in the future.
The Bank of England is expected to raise interest rates to 5.5%, potentially marking the end of its tightening cycle, as concerns about a cooling economy grow among policymakers.
Sweden's central bank has raised interest rates for the eighth consecutive time to combat high inflation, as the country's economy shows signs of improvement, while Norway's central bank also opted to raise rates and signaled the likelihood of another hike in December.