Turkey’s central bank may increase its benchmark interest rate to at least 17.5 percent at a meeting next week to help reverse dollarisation of the economy and to rein in inflation, said Alaattin Aktaş, a columnist for the Dünya newspaper.
In an address on Wednesday, central bank governor Naci Ağbal spoke frequently of the need to encourage Turkish citizens and investors to switch back into liras from dollars. He also spoke of high producer price increases, which would impact consumer price inflation of 14 percent, Aktaş said on Thursday.
The meeting of the central bank’s Monetary Policy Committee on Dec. 24 is important because it will show whether the central bank has the freedom to set interest rates and implement its anti-inflationary goals, Aktaş said. Leaving the benchmark rate unchanged or raising borrowing costs symbolically could have an adverse effect, he said.
Turkey’s central bank increased the benchmark interest rate to 15 percent from 10.25 percent last month after President Recep Tayyip Erdoğan brought in Ağbal, a former finance minister, to lead monetary policy. Erdoğan sacked Murat Uysal, Ağbal’s predecessor, on Nov. 7 after the lira sunk to a record low of 8.58 per dollar.
The lira has since rallied to around 7.78 per dollar. But Turks have still been buying more foreign currency this month, a trend that can only be reversed by increasing interest rates, Aktaş said. Losses for the currency this year total about 25 percent.
The central bank has said it wants to bolster its foreign currency reserves, depleted in defence of the lira this year. As a precursor, the bank will first reduce the amount of outstanding foreign currency swaps conducted with state-run banks, Aktaş said. It will take some time for the central bank to be in a position to increase its foreign exchange reserves, he said.
The government has called on Turkish citizens to sell their foreign currency for liras. But to achieve this, the right conditions need to be put in place by increasing interest rates, Aktaş said.
Turkish banks are unable to borrow substantial amounts of cash from the central bank at the benchmark interest rate of 15 percent, a signal of central bank preparations to increase borrowing costs further, Aktaş said.