Turkey keeps interest rates on hold as inflation stays high

ISTANBUL-Reuters

Central Bank Governor Erdem Başçı. DHA Photo

The Turkish Central Bank kept interest rates on hold Nov. 20 and said it would keep monetary policy tight until the inflation outlook improves significantly.

The Central Bank is battling to rein in inflation even as the economy slows and conflict rages in neighboring countries.

The Bank left its one-week repo rate at 8.25 percent, as forecast by 15 of 16 economists polled by Reuters. One economist had expected a cut in the main rate to 7.75 percent.

After hiking rates sharply in January to halt a slide in the lira, the central bank cut rates in May, June, July and August before leaving them on hold in September and October.

The government slashed its growth estimates and raised its inflation forecast for 2014 and 2015 last month, citing unfavorable conditions in the global economy.

Businesses and economists now expect a year-end consumer price inflation rate of 9.22 percent, a Central Bank survey showed last week, creeping up from its previous poll and well above its target rate of 5.3 percent.

“With the country’s inflation rate standing at just below 9 percent in October, the highest rate among the leading emerging markets, the gap between the current level of consumer prices and the central bank’s target is embarrassingly wide,” said Nicholas Spiro of Spiro Sovereign Strategy in London.

“If the [Central Bank] continues to keep rates on hold until inflation starts to meaningfully decline ... it will win back credibility in the eyes of investors,” he said.

The Central Bank kept its overnight lending rate at 11.25 percent, its primary dealers’ overnight borrowing rate at 10.75 percent and its overnight borrowing rate at 7.50 percent.

Two economists had forecast a 75 basis-point cut in the overnight borrowing rate and two predicted cuts in the overnight lending rate.