Turkish central bank leaves rates on hold

The Turkish central bank has left its interest rates on hold as expected, and reiterated its determination to get inflation under control.

In a statement, the central bank said it had left the repo rate at 8 per cent, the overnight borrowing rate at 7.25 per cent and the late liquidity window rate at 12.75 per cent.

It said:

Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behaviour.

The central bank will continue to use all available instruments in pursuit of the price stability objective.

The central bank bumped up its lending rate by half a percentage point in December – a step deemed overly timid by market participants who had expected a more aggressive rise to counter inflation, which stood at an annual rate of almost 13 per cent in November before easing a little to just under 12 per cent in December.

Commerzbank notes that the currency is not out of the woods yet:

The rhetoric is sharpening and the lira is depreciating. Claims by Turkish President Recep Tayyip Erdogan that the US is establishing an ‘army of terror’ on the border to Syria are fuelling concerns on the market that the relations between Washington and Ankara could deteriorate further, which is causing the lira to plummet.

The [central bank] could quickly come under pressure to act should the lira continue to depreciate at the current rate. We maintain our view that the lira will remain susceptible to bad news due to the low real interest rate level.

The decision had no impact on the lira, with the dollar holding steady just under TRY3.80.


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