ISTANBUL: Turkey’s central bank kept interest rates steady on Thursday, saying it would stick “decisively” to a tight policy stance until inflation improves, despite President Tayyip Erdogan’s repeated calls for cheap credit.
For the fourth consecutive meeting, the bank left its late liquidity window, the highest of several instruments it uses to set policy, at 12.25 percent and its benchmark repo rate at 8 percent. In a Reuters poll, all 15 economists forecast that rates would be left on hold. “(The) tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement and becomes consistent with the targets,” the bank said in a statement following the policy-setting meeting. While the bank emphasises its fight against inflationary pressure, Erdogan – who has described himself as an “enemy” of interest rates – wants banks to lend more at lower rates to stimulate the economy. Turkey’s core inflation spiked to a 13-year high last month, prompting Erdogan to blame interest rates for fuelling price growth, reiterating an unorthodox stance that has unnerved investors. Turkey’s economy has recovered from a downturn that followed an attempted coup last year, helped by a series of government stimulus measures, and expanded by 5.1 percent in the second quarter. Haluk Burumcekci, an economist who runs Burumcekci Consulting in Istanbul, said the central bank took a hawkish line, citing two changes in its statement from previous months – that it would maintain a tight monetary policy stance “decisively” until the inflation outlook “becomes consistent with the targets”.
The central bank has an inflation target of 5 percent. “In the current environment words may not be enough and it may be necessary to take a step. There is a high probability that inflation will go back to 12 percent levels again in the months October-November,” he said. “Somewhat more tightening may be necessary.” The lira weakened briefly after the announcement, but soon returned to its level before the announcement. It was at 3.7735 to the dollar at 1133 GMT. The bank’s resistance to lifting the repo rate has triggered alarm bells among investors about the extent of its independence amid Erdogan’s criticism. The bank also kept its overnight lending rate at 9.25 percent and overnight borrowing rate at 7.25 percent, as expected.
