ISTANBUL: Turkey's central bank is expected to keep interest rates on hold on Thursday despite political pressure to cut them, but it may take steps to add liquidity to the market after giving an upbeat view on the economy last week.
Central bank governor Erdem Basci said last Thursday that he saw no need for Turkey to lower its growth targets for this year and that inflation will peak in May.
That was more optimistic than the market's view, suggesting to some that he was paving the way for looser monetary conditions in the months ahead.
Sixteen economists polled by Reuters expected the bank to keep its main one-week repo rate at 10 percent and its overnight borrowing rate at 8 percent.
One said it would cut its overnight lending rate, the upper boundary of its corridor of rates, by 25 basis points to 11.75 percent.
"The current economic picture requires a tight monetary policy stance and even a measured rate cut in this environment will be negative for markets," wrote HSBC strategist Fatih Keresteci.
"Rather than a rate cut it would make more sense if the bank uses macroprudential tools to support the economy," he said.
One economist forecast that the bank would cut its lira reserve requirements - the amount of lira lenders must set aside against the loans they extend to companies and consumers.
Another said it may let lenders hold less of their required reserves in gold or foreign currency rather than in lira.
The central bank has used these reserve ratios extensively to keep a lid on domestic demand to prevent the current account gap - Turkey's main economic weakness due to its fuel import bill - from widening further.
Two economists said the bank would start paying interest on lira reserves to provide some relief to the banking sector after the central bank implemented a round of huge rate hikes in late January. Just last month the government authorised the central bank to start paying interest on lira reserves.
The central bank's forecast for 4 percent economic growth this year is roughly double the consensus in a Reuters poll of 25 economists last week.
Economists cited concern in the poll about political instability and said the growth outlook had been crimped by the central bank's massive 4 percentage-point round of rate hikes in January aimed at bolstering the lira as it fell to record lows.
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