Turkey’s central bank kept the benchmark interest rate unchanged on Thursday, keeping it at 14 percent.
“While cumulative impact of the recent policy decisions is being monitored, to create a foundation for sustainable price stability, the comprehensive review of the policy framework is being conducted with the aim of encouraging permanent liraization in all policy tools of the bank,” it said in a written statement.
The bank said it will continue to use all available instruments decisively within the framework of “liraization strategy” until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved in pursuit of the primary objective of price stability.
The fragility of the Turkish lira, which lost 44 percent of its value in 2021, came after the central bank slashed its policy rate by 500 basis points to 14 percent from 19 percent since September 2021 amid high inflation.
The increase in inflation in the recent period has been driven by pricing formations that are not supported by economic fundamentals, supply-side factors such as the rise in global energy, food and agricultural commodity prices, supply constraints, and demand developments, the statement said.
Turkey’s annual inflation surged to a 20-year high of 48.69 percent in January, driven by last year’s crash of the lira, which severely hit the purchasing power of citizens.
The Turkish government announced last December its foreign currency-protected lira deposits scheme, which encouraged the transfer of foreign-exchange deposits into exchange-rate-protected lira.
Turkish President Recep Tayyip Erdogan is an advocate of low-interest rates, insisting that the move will lift the burden on investments despite the rising inflation. ■