Turkish lira weakens after Central Bank’s unexpected rate move
ANKARA
HÜRRİYET photo
The Turkish Lira slumped after Turkey’s Central Bank held interest rates unchanged in an unexpected move, as the bank had been expected to lift rates following the rate hike move from the U.S. Federal Reserve (Fed).The lira weakened to 2.9474 against the U.S. dollar after the bank’s rate decision, while it had been trading around the 2.91 level before the meeting.
The Central Bank left its main one-week repo interest rate unchanged at 7.5 percent, underlying the “volatility in energy and unprocessed food prices.”
The bank had previously hinted that it would raise rates in tandem with the Fed, which hiked rates last week after months of speculation. The Central Bank’s meeting was therefore seen as a critical test of its independence in making decisions amid criticism from senior authorities who have called for rate cuts.
The Central Bank said energy price developments were positively affecting inflation but that cumulative exchange rate movements were delaying improvements in core indicators.
“Considering the impact of the uncertainty in global markets on inflation expectations and taking into account the volatility in energy and unprocessed food prices, the committee stated that the tight liquidity stance will be maintained as long as deemed necessary,” it said in a written statement on Dec. 22.
Policy simplification steps to begin ‘next meeting’
Future monetary policy decisions will be conditional on the inflation outlook, the bank added.
“Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained. The committee indicated that, should the decline in volatility observed after the start of global policy normalization persist, monetary policy simplification steps would begin with the next meeting,” it added.
The bank also held its overnight borrowing rate at 7.25 percent and its overnight lending rate at 10.75 percent.
