ANKARA, July 25 (Reuters) – The Turkish Central Bank on Tuesday detailed measures it has taken to support monetary tightening, including raising the monthly maximum interest rate on cash use on credit cards and overdraft accounts to 2.89%.
It said the rate hike, from the previous 1.91%, was designed to control inflation and balance domestic demand.
The move came after the bank last week raised its policy rate by 250 basis points to 17.5%, continuing President Tayyip Erdogan’s low rate policy and promising further tightening.
This is the second meeting under the new Governor Hafize Gaye Erkan, who led the change of course after a week’s repo rate (TRINT=ECI) was cut to 8.5% from 19% since 2021 despite rising inflation.
The less-than-expected increase comes amid economist expectations that inflation, which fell to 38.21% in June, will rise to 60% by the end of the year due to the devaluation of the lira and various tax increases.
After its meeting on July 20, the bank said that policy easing will continue gradually and selective credit and quantitative tightening decisions have been made to support the monetary tightening process.
On Tuesday, the bank said it set the monthly growth limit for lira commercial loans at 2.5%, from the previous 3%, excluding export, investment and agricultural loans, to complete the steps taken in a policy simplification process.
“The central bank revealed that the tightening will not only continue to increase interest rates, but also with selected measures, domestic demand will be squeezed,” said Enver Erkan, chief economist of Dinamik Yatirim.
The lira was little changed at 26.9550 against the dollar on Tuesday, close to a record low of 27.05, having weakened 30% so far this year.
Among other measures, the reserve requirement ratio of 15% in FX protected accounts was announced on July 21.
The bank said on Tuesday that it has also decided to set the growth limit for car loans at 2%, down from 3%, and keep the 3% limit for general purpose loans unchanged.
Export and investment loans as well as loans for the earthquake zone are exempted from the bank’s credit control measures.
Measures were also taken to support exporters’ access to financing, with the daily limit for rediscount credits raised to 1.5 billion lira.
Reporting by Nevzat Devranoglu and Daren Butler; Editing by Bernadette Baum
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