Turkey keeps rates on hold in post-election uncertainty

ISTANBUL - Reuters

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Turkey’s Central Bank kept interest rates on hold for the fifth straight month on July 23, remaining cautious as political uncertainty blunted consumer confidence and a drop in food prices took pressure off inflation.

Prime Minister Ahmet Davutoğlu’s Justice and Development Party (AKP) has until late August to find a junior coalition partner or face a snap election after losing its single-party majority at the polls last month. It is in preliminary talks with the main opposition, but progress appears to be slow.

Political uncertainty has weighed on both investment and consumer confidence. Some government officials admit growth is likely to fall far short of Ankara’s targets this year.

“Food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators,” the bank said in a statement on its website.

The bank kept its one-week repo rate at 7.50 percent and the overnight borrowing rate at 7.25 percent. The overnight lending rate remained 10.75 percent and the primary dealers’ overnight borrowing rate 10.25 percent.

All 16 economists polled by Reuters had expected key interest rates to be left on hold. The lira has weakened sharply this week on security worries generated by militant violence, but investors have been more focused on the U.S. Federal Reserve and prospects for a U.S. rate hike than on Turkey’s Central Bank.