Turkey’s Central Bank holds rates, weighing inflation

ANKARA

Turkey’s Central Bank kept interest rates steady on March 7, saying it would keep policy tight until price pressures eased, signaling its intention to rein in inflation.

Year-on-year inflation has cooled from the 14-year peak of 12.98 percent it reached in November 2017. But at 10.26 percent in February it remains one the main imbalances in Turkey economy, well above the Bank’s target of 5 percent.

The Central Bank last hiked rates in December 2017, its first tightening in eight months.

Its monetary policy committee said in a statement that inflation and inflation expectations “continue to pose risks on pricing behavior,” with underlying indicators displaying “inertia.”

It also said recent data indicated economic activity remained robust and domestic demand was continuing to expand.

For a second straight meeting, the Bank left all four of its policy-setting rates unchanged, as predicted by economists.

Nomura International economist İnan Demir said overheating pressures and the susceptibility of the Turkish Lira to global and Turkey-specific shocks meant “the risks are skewed towards higher rates.”

“However, we do not expect the Bank to act unless the currency comes under severe pressure,” Demir said in a note to clients, as quoted by Reuters.

The lira was little changed at 3.8010 from 3.7987 immediately before the Central Bank’s announcement.

The Bank kept its late liquidity window, the highest of the instruments it uses to set policy, at 12.75 percent. The overnight lending rate stayed at 9.25 percent and the overnight borrowing rate at 7.25 percent.

Turkey’s economy has rebounded strongly from a downturn that followed an attempted coup in 2016, helped by a series of government stimulus measures. It grew by 11.1 percent year-on-year in the third quarter, its fastest expansion in six years.