Turkey holds rates steady despite government pressure
Turkey's central bank refused to bow to government pressure and kept its key interest rates unchanged on Thursday.
In a statement on its website, the bank said the overnight lending rate was being held at 12.0 percent, while the borrowing and one-week repo rates were left at 8.0 percent and 10.0 percent.
The announcement came after the bank's monetary policy committee meeting, which agreed that the tight monetary policy would be maintained until an improvement in the inflation outlook was secured.
Prime Minister Recep Tayyip Erdogan said early this month after his Islamic-rooted party scored a sweeping victory in March 30 local polls that the bank should cut interest rates in order to stimulate the economy.
Erdogan, a strong candidate for the presidency in August, has made a turnaround in Turkey's economic fortunes a keystone of his 11-year rule, pushing the central bank, which is officially independent, for lower rates to boost credit for consumers and businesses.
The bank aggressively raised key rates in January in a bid to halt a steep drop in the Turkish lira.
The January hike came amid an escalating crisis for Erdogan sparked by a vast corruption investigation implicating himself and his inner circle, months after mass anti-government protests.
"The central bank should hold an extraordinary meeting to cut (rates) ... just as they met previously to raise them," Erdogan said on April 4.
"Investors in Turkey will be eager once interest rates are lowered. More investments will be made," he added.
- Bank decision 'no surprise' -
The Turkish lira rallied to 2.1302 against the US dollar, and 2.9461 against euro after the bank rate decision.
Analyst William Jackson at the London-based Capital Economics said the decision should ease concerns that it might "bow to government pressure to loosen monetary policy" following Erdogan's comments.
Jackson suggested that the central bank had withstood government pressure but only "for now".
"It is perhaps reassuring that the CBRT (central bank) didn't take further steps to ease policy today," he said.
"But given the pressure from the government to lower rates, there still seems to be a fairly high chance that the CBRT could do so over the coming months. In this event, the lira would become more vulnerable to a fresh sell-off".
Ali Cakiroglu, senior investment strategist at HSBC in Turkey, said the bank decision was "no surprise".
He said the bank did not give any hints about future interest rates but he predicted they would remain at current levels "by June at least until the inflation reached its peak".
Turkey's economy grew by 4.0 percent last year, down from nearly 9.0 percent in 2010, and analysts warn of a slowdown after months of turmoil and ahead of presidential elections in August.
Emerging economy currencies including the lira have also taken a beating due in part to the US Federal Reserve's decision to reduce stimulus measures.
Ratings agency Fitch this month affirmed Turkey's credit rating at BBB- with a stable outlook but cut its economic growth forecast to 2.5 percent for this year and 3.2 percent for 2015.
It also cited political risk in the country despite the ruling party's election triumph.
