Turkish central bank to keep rates steady despite dovish messages

ISTANBUL: Turkey's central bank is expected to keep its one-week repo rate unchanged at 19% on Thursday, a Reuters poll showed, even as concerns about possible near-term monetary easing increased after Governor Sahap Kavcioglu's recent comments.

The bank's policy rate has been kept steady at 19% since March this year, while inflation has continued to climb and hit 19.25% in August, exceeding expectations.

Kavcioglu's comments last week that policy was tight enough to bring inflation down in the final quarter, combined with the omission of a pledge to keep rates higher than inflation have led economists to speculate that monetary easing was on the way.

Kavcioglu also stressed the importance of core inflation, which fell below 17% annually in August.

But 18 of 19 economists who participated in a Reuters poll forecast that the bank would keep its policy rate unchanged again this month, while one expected a 100-basis-point cut.

The independence of the central bank has been a main concern for investors in recent years, given that Erdogan, a self-described "enemy" of interest rates, has repeatedly called for lower rates.

"The CBRT has frequently suggested that it is inclined to reduce policy rates later this year," Societe Generale said, adding that it expected domestic inflation pressures to remain elevated.

"The risk of a policy mistake is rising (i.e. CBRT cutting rates in the near term), particularly as political pressure for easier monetary policy continues to build," it said in a note.

The median estimate of 16 economists who participated in the Reuters poll for the policy rate at year-end was 18%, with forecasts ranging between 19% and 15.5%.

Fourteen economists expected a cut in the fourth quarter, while one expected it in the first quarter of 2022.

An early rate cut risks hitting the lira, which had its sharpest intraday drop since May after Kavcioglu's comments this month. The drop in the currency risks higher inflation via imports.

The central bank will announce its rate decision at 1100 GMT on Sept. 23.