Turkey holds interest rates as expected on inflation worries
Turkey’s central bank kept its main interest rates unchanged as expected Thursday, citing the level of inflation as a reason for caution.
The one-week repo, overnight lending and late liquidity window rates remained at 8 percent, 9.25 percent and 12.25 percent respectively, while the overnight borrowing rate was maintained at 7.25 percent. All economists surveyed by Bloomberg forecast a hold.
Gov. Murat Cetinkaya is sticking to his pledge to keep the cost of lending elevated until there’s a marked improvement in inflation – something the central bank doesn’t expect until the end of the year. Price gains accelerated to double digits last month, which the bank said showed that the past depreciation of the lira is still feeding into consumer prices.
The currency has recovered more than 10 percent from a record low in January, after the regulator raised the cost of borrowing to the highest level in at least six years.
“The central bank is likely to be patient before seriously considering a rate cut,” given that inflation may remain volatile in the coming months, Piotr Matys, a strategist at Rabobank in London, said in an email after the decision. He expects price gains to ease next year.
The lira was up 0.2 percent at 3.4509 per dollar at 5:36 p.m. in Istanbul. The yield on Turkey’s twoyear lira notes was unchanged at 11.62 percent, according to data compiled by Bloomberg.
The central bank, in its statement, repeated its promise to tighten policy if needed, but it omitted a previous reference to an expected slowdown in food inflation and manufacturing costs. Instead, the bank highlighted the “risks on pricing behavior” stemming from the August rise in core inflation, which strips out the impact of volatile items such as food and energy.
Core inflation surged to 10.2 percent last month, the highest since June 2005 and significantly more than the 9.8 percent prediction in a Bloomberg survey of economists. Though the bank doesn’t have a target for core inflation, it is widely seen as an indicator of underlying price pressure and therefore compares unfavorably with the regulator’s long-term goal of 5 percent headline inflation.