Turkish central bank holds rates at 24% in bid to fight inflation

Turkey’s central bank left its benchmark interest rate on hold, in line with expectations, as it tries to bring down inflation stuck above 20 percent after a currency crisis devalued the lira and sharply slowed economic growth. The one-week repo rate was kept at 24 percent at Thursday’s monetary policy committee meeting, the central bank said on Twitter. A Bloomberg poll of 24 analysts unanimously forecast the bank would leave the rate unchanged for a second time in a row. Consumer prices rose nearly 22 percent in November, off a peak of 25 percent the previous month, somewhat easing pressure on the central bank to keep the rate at its highest level since 2004. Economic growth slowed sharply to 1.6 percent annually in the third quarter, data showed this week, suggesting the economy may be headed towards recession.

But inflation still remains more than four times as high as the central bank’s year-end target of 5 percent. “While developments in import prices and domestic demand conditions have led to some improvement in the inflation outlook, risks on price stability continue to prevail,” the central bank said on Thursday. It added that the “rebalancing trend in the economy has become more noticeable.” Investors want policymakers to retain tight monetary policy after they failed to raise rates fast enough earlier this year when the economy showed signs it was overheating. Those concerns, coupled with a bitter diplomatic dispute with the US, drove the lira to record lows in August. It has since strengthened by about 35 percent from the trough but is still down 29.5 percent for the year to date. Recep Tayyip Erdogan, Turkey’s president, has demanded policymakers keep interest rates low to encourage the credit-fuelled growth of recent years. But he has largely refrained from commenting on monetary policy since a hike of 625 basis points in September spurred the lira’s recovery. Economists reckon the central bank should maintain a tight policy in the run-up to nationwide municipal elections in March, when the government could ease austerity measures it has promised to increase spending.

Financial Times

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya