Turkey's central bank left all its main interest rates unchanged on Tuesday, citing recent volatility in the lira, financial uncertainties and rising food prices.
The Monetary Policy Committee held the one-week repo rate at 7.50 percent, in line with the median estimate in a survey of economists. The bank also kept its overnight borrowing and lending rates unchanged at 7.25 percent and 10.75 percent respectively, according to a statement on its website.
Governor Erdem Basci said July 30 that he could move from his unorthodox interest rates corridor, introduced five years ago, to a single-rate policy as early as today. Declining volatility in the U.S. bond market allows policy makers to set a single shortterm benchmark interest rate instead of the current daily adjustments, Basci said.
The lira weakened after the rates decision and was trading 0.4 percent lower at 2.8805 per dollar at 2:01 p.m. in Istanbul.
Trading the world's most widely used currency pair has become a thankless chore for investors.
The dollar has been hovering around its short- and medium-term averages against the euro -- near $1.10 per euro -- since late June. An economic slowdown in China and a commodity rout have pushed the greenback higher this quarter versus most major peers. Yet it registered the smallest move in that time against the common currency amid signs of European growth and expectations that the Federal Reserve will take its time in raising U.S. interest rates.
"I don't think there's any reason to bother with it, to be honest," Daniel Brehon, a New York-based strategist at Deutsche Bank AG, said by phone, referring to the euro-dollar trade. "Our view is looking for a hike in September, but we're all sympathetic with the idea that it'll be very slow and it'll be wait-and-see for six months and go again," he said, speaking about the Fed's approach to raising rates.
The dollar rose 0.3 percent to $1.1078 per euro at 5 p.m. in New York. It was little changed at 124.39 yen. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, rose 0.2 percent to 1,210.39.
The euro has been trading along the 50and 100-day trend lines, which are at $1.1082 and $1.1047, respectively. The density of buy and sell orders at $1.10 is about equal, according to data from Commerzbank AG, leading to a stalemate.
Trade balance in the euro area, which was in deficit until 2011, rose to a surplus of 21.9 billion euros in June.
"You have a trade balance that's better in the euro zone, they have a current account surplus that's continuing to rise, and growth is a little better," Brehon said.
Meanwhile, Turkey's central bank held its key interest rate on Tuesday, as mounting political and military concerns push the Turkish lira to record lows. The central bank left its main rate unchanged at 7.5 percent, as forecast.
After the decision, the lira hit its weakest ever level against the dollar, falling as low as 2.8850, having traded at 2.8675 beforehand.
In a statement, the central bank said a backdrop of falling food and energy prices, plus domestic and global market uncertainty had factored in its decision.
"Processed food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators," it said.
"Considering this delay and taking into account the uncertainty in domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy as long as deemed necessary." The bank added that future monetary policy decisions would be "conditional on the improvements in the inflation outlook."