Central Bank of the Republic of Türkiye (CBRT) raised its one-week repo auction rate (policy rate) by 500 basis points from 30 percent to 35 percent in its critical policy meeting. Geopolitical risks were added to the official statement made by the CBRT following the Israel-Palestine conflict.
The Monetary Policy Committee (the Committee) decided to continue the monetary tightening process in order to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior, the statement said.
According to the statement, “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.”
The pass-through of the recent wage and exchange rate-driven cost pressures and tax adjustments to inflation has been largely completed, CBRT’s monetary policy committee said.
Turkey’s stock market Borsa Istanbul which fell by 7 percent following Turkish President Tayyip Erdogan’s strongest comments yet on the Gaza conflict, rallied by 2% on Thursday ahead of the decision and continued its rally following the rate hike as well. As of 14:09 Turkish local time, BIST 1000 rose to 7641 intraday high. Dollar hit an all-time high against Turkish Lira (TRY) on Thursday at 28.15 ahead of the critical rate hike and moved slightly downward following the hike.
Erdoğan said on Wednesday the Palestinian militant group Hamas was not a terrorist organization but a liberation group fighting to protect Palestinian lands. “Hamas is not a terrorist organization, it is a liberation group, ‘mujahideen’ waging a battle to protect its lands and people,” he told lawmakers from his ruling AK Party. Rising geopolitical risks are still setting the market mood. BIST 100 experienced the sharpest fall in recent months on Wednesday following Erdogan’s remarks on Hamas. The Israel-Palastine conflict is considered as the biggest risk on markets as it is feared of a broader conflict.
NATO member Turkey condemned the civilian deaths caused by Hamas’s Oct. 7 rampage in southern Israel but also urged Israeli forces to act with restraint in their response. Ankara has strongly criticized Israel’s bombardment of Gaza. Unlike many of its NATO allies and the European Union, Turkey does not consider Hamas a terrorist organization and hosts members of the group on its territory. Ankara backs a two-state solution to the decades-old Israel-Palestinian conflict.