Business

Turkish cenbank holds rates at 19%, drops tightening pledge

ISTANBUL (Reuters) – Turkey’s central bank held rates steady at 19% 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%.

The lira slipped 0.7% to as far as 8.125 versus the dollar after the hawkish guidance was removed.

The bank’s policy committee, under new governor Sahap Kavcioglu, said the interest 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”.

Erdogan’s abrupt removal of his predecessor, Naci Agbal, last month sent foreign investors fleeing on concerns he would quickly slash rates. But the new governor’s recent promises of tight policy – and a more than 10% drop in the lira – 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 after mid-year.

One predicted a cut to 18.50% and another to 17%.

Last month, Agbal had raised rates by a more-than-expected 200 basis points to levels last touched in mid-2019 to dampen inflation and support the currency.

Before taking the job, Kavcioglu had openly criticised the tighter stance and espoused the president’s unorthodox view that high rates cause inflation.

Erdogan has fired three bank chiefs in two years, eroding monetary credibility.

(Reporting by Ali Kucukgocmen and Ece Toksabay; Writing by Daren Butler; Editing by Jonathan Spicer and Gareth Jones)

Read the original article on Business Insider

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