Erdogan adviser says central bank unlikely to cut rates early in Turkey

ANKARA: The Turkish central bank is unlikely to cut interest rates early and will set policy based on inflation data, even after it dropped a pledge this week to tighten if needed, President Tayyip Erdogan's chief economic adviser told Reuters on Friday.

On Thursday - in the first policy decision after Erdogan abruptly fired its hawkish and well-respected governor last month - the bank held the key rate at 19% as expected.

It also promised to keep the rate above inflation.

But the bank ditched last month's pledge to raise rates if necessary and to "decisively" maintain a tight policy "for an extended period" to address inflation, which has risen above 16% and has been in double-digits for most of the last four years.

"There is no point in saying it will make additional tightening in every single statement," Cemil Ertem, the adviser, said in an interview. "I do not see an indication of an early rate cut from the MPC statement."

Erdogan has long called for lower rates and abruptly fired the last three bank chiefs in less than two years, including Naci Agbal on March 20. Analysts say the bank's credibility is tarnished given Erdogan's outsized influence on monetary policy.

The new governor, Sahap Kavcioglu, has in the past criticised Agbal's tight stance.

"I do not think the central bank or the governor knows when they will cut the policy rate, since they will act according to the data. I think it is early to make a comment on rate cuts before seeing the inflation data," said Ertem.

The central bank cited risks to the inflation outlook as it held rates steady on Thursday.

Ertem said the possibility of a rate hike is not ruled out.

"The central bank confirmed...it will act in the period ahead in line with inflation expectations and how it materializes," he said.