Turkey bank keeps rates steady ahead of polls

ANKARA: Turkey's central bank on Wednesday kept its main interest rates unchanged, in a widely anticipated move just over two weeks ahead of June 7 elections.

The central bank is keeping a careful eye on inflation while also trying not to provoke President Recep Tayyip Erdogan who has called for aggressive rate cuts to boost growth.

The bank said in a statement after its latest monetary policy committee meeting that the one-week repurchase rate would be kept at 7.50 percent, the marginal funding rate at 10.75 percent and the borrowing rate at 7.25 percent.

The bank said in its statement that it was carefully watching inflation due to recent pressure on the Turkish lira on currency markets.

"Recently elevated volatility in the exchange rates has limited the improvement in the core inflation," the bank said.

"This, combined with the uncertainty in global markets and volatility in energy and food prices, makes it necessary to maintain the cautious stance in monetary policy," it added.

Inflation climbed to 7.9 percent in April from the same period last year, a steeper rise than expected by economists.

Economists have said that Turkey's interest rates may now stay on hold for some time as the bank treads a fine line between inflation concerns and not annoying Erdogan with rate hikes.

"While pressure from the government means that rate hikes are unlikely in the near-future, except in the event of a sharp currency sell-off, monetary conditions will remain extremely tight," William Jackson, economist at Capital Economics, said in a note to clients.

"For now, we expect official interest rates to stay on hold over the next 18 months."

Erdogan has this year been involved in a hugely public row with central bank governor Erdem Basci over rates that rattled the markets, but tensions have calmed somewhat since a meeting between the two in March.

The ruling Justice and Development Party (AKP) will be fighting the legislative elections against the background of a slowing economy, which until now has been one of its trump cards.