Turkey's central bank resorted to a bigger-than-expected rate hike on Thursday, citing upside risks to inflation expectations.
The Monetary Policy Committee of the Central Bank of the Republic of Turkey governed by Naci Agbal decided to lift the key one-week repo rate sharply to 19.00 percent from 17.00 percent.
The bank had raised the rate by 475 basis points at the first MPC meeting of Agbal as governor in November and by 200 basis points in the subsequent meeting in December.
The tight monetary policy stance will be maintained decisively, taking into account the end-2021 forecast target, for an extended period until strong indicators point to a permanent fall in inflation and price stability, the MPC said.
The tight stance will foster macroeconomic and financial stability positively by facilitating the fall in country risk premium, the reversal in currency substitution, the accumulation of foreign exchange reserves and the perpetual decline in financing costs, the bank said.
The bank is set to keep monetary conditions tighter than most expect over the next couple of years, Jason Tuvey, an economist at Capital Economics, said. That will provide a more supportive environment for the lira.
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