Turkish central bank leaves rates unchanged for third straight month

Turkey’s central bank kept interest rates on hold for a third straight month on Thursday.

The benchmark interest rate of 19 percent will remain unchanged, the central bank said on its website. The decision matched the expectations of all 19 economists surveyed by Reuters last week.

“The policy rate will continue to be determined at a level above inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is reached,” the bank said in a statement accompanying the decision.

Inflation in Turkey slowed to 16.6 percent in May from 17.1 percent in April, surprising many economists.

Turkish President Recep Tayyip Erdoğan hired central bank governor Şahap Kavcıoğlu in mid-March after sacking his rate-hiking predecessor. The lira has come under selling pressure since, dropping to a record low beyond 8.8 per dollar in early June when Erdoğan said it was imperative that the bank cut rates in July or August.

Erdoğan has sacked three central bank governors since July 2019.

Economists say that emerging market currencies including the lira will come under pressure as the U.S. Federal Reserve tightens monetary policy and pares back an asset purchase programme. Fed officials signalled on Wednesday that they expect to raise interest rates by late 2023, earlier than previously expected.

Turkey’s central bank kept interest rates at below annual inflation for much of last year to help the government engineer a borrowing boom. Officials were forced to hike rates in September after the lira slid.

“Rates stay on hold. But with U.S. rates going higher, EMFX likely set to weaken in response, and given Turkish inflation will likely pick up again, the question is can the central bank hike?” Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, said on Twitter.

The lira was trading down 0.4 percent at 8.63 per dollar after the central bank's decision, little changed from earlier levels.

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