Turkey’s Central Bank has announced today, June 22, that it has increased the main interest rate from 8.5 percent to 15 percent after a long period of rate cuts, though the hike is lower than expected by financial circles. US-based investment bank Morgan Stanley had predicted that the rate would go up to 20 percent, while Goldman Sachs had expected a rise to 40 percent. The cut in interest rates started back in September 2021 when the country’s interest rates stood at 19 percent.
According to the Central Bank’s statement, its Monetary Policy Committee will determine the policy rate in a way that will create the monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation, aiming to reach the five percent inflation target in the medium term.
Turkish steel mills’ first response to the Central Bank’s new interest rate was to close their domestic rebar sales prices, in order to evaluate the situation. However, local rebar traders SteelOrbis spoke to said they expect prices to move up due to the continuing depreciation of the Turkish lira. “Initial expectations for the Central Bank’s interest rate announcement varied at around 20 percent and higher, and so 15 percent was lower than anticipated,” a trader said, adding, “We have started to receive rebar demand in the spot market since people expect higher rebar prices in the coming period.” Another Turkish trader commented, “Local rebar demand is not anticipated to recover quickly to healthy levels. 15 percent is not enough, but at least it gives hope that policies are returning to normal. We understand that monetary tightening will continue. For the end of 2023, I believe 26-27 percent and higher for interest rates will be reasonable.” A supplier of scrap and billet said, “Although it is not great for the market, there will still be some confidence, so people can adjust their expectations and business will revive.” “Meanwhile this decision will have an impact on the already vulnerable financial capacities of all players, as now credit rates will also be increased,” another source commented.