Turkish central bank holds rates at 19 per cent

ISTANBUL: Turkey’s central bank held rates steady at 19 per cent as expected on Thursday and dropped a pledge to tighten policy further if needed, in its first decision since President Tayyip Erdogan fired the hawkish former governor and set off a market selloff.

In a statement, the bank did not repeat last month’s pledges to deliver more rate hikes if needed and to “decisively” maintain a tight monetary policy “for an extended period” to address inflation, which has risen above 16 per cent.

The lira slipped 0.7 per cent to as far as 8.125 versus the dollar ater the bank under new governor Sahap Kavcioglu replaced the hawkish guidance with a soter assessment of risks to inflation and the economy.

Erdogan’s shock removal of his predecessor, Naci Agbal, a respected policy hawk, last month sent foreign investors fleeing on concerns he would quickly slash rates.

But Kavcioglu - who had previously criticised the tight stance - in recent weeks promised no abrupt changes. Those assurances as well as the more than 10 per cent lira selloff convinced analysts that policy would remain steady for now.

In a Reuters poll, all but two of 19 economists forecast the bank would keep its one-week policy rate unchanged this week, before easing likely around mid-year.

John Hardy, FX strategy head at Saxo Bank, said the currency had weakened on Thursday because Agbal’s pledges were scrapped.

“Any daylight they see, they are going to want to cut rates. Holding them here (today) is just an acknowledgment they can’t get away with it for now,” Hardy said.