Turkey central bank on Tuesday kept interest rates unchanged for the eleventh straight month, amid expectations that policy will be tightened in the near term in the backdrop of high inflation.
The Monetary Policy Committee of the Turkish central bank, led by Governor Erdem Basci, decided to keep the one-week repo rate at 7.5 percent. The overnight lending rate was left unchanged at 10.75 percent and the borrowing rate at 7.25 percent. The decision was in line with economists’ expectations.
“Considering the wage developments and the impact of the uncertainty in global markets on inflation expectations and pricing behavior 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,” the bank said in a statement.
“Future monetary policy decisions will be conditional on the inflation outlook,” the bank added.
In December, the bank left interest rates unchanged, defying expectations for an increase, and signaled that policy simplification steps would be adopted in the next meeting if the reduced market volatility persists.
Economists said the bank is waiting too much to hike interest rates, partly due to political pressure. A tightening is needed to stabilize the Turkish lira, that has been weakening for sometime, and to rein in high inflation.
“The longer the MPC leaves rates unchanged, the more concerned investors are likely to be that monetary policy is being influenced by the government’s desire to keep interest rates low,” Capital Economics economist William Jackson said.
“Ultimately, with inflation set to jump, we think the MPC will need to raise interest rates if it is to preserve its credibility in the markets and avoid a sharp lira sell-off.”
The material has been provided by InstaForex Company – www.instaforex.com