ANKARA: Turkey’s central bank held its policy rate steady at 9% on Thursday, fulfilling last month’s pledge that it would end a brief but sharp easing cycle after President Tayyip Erdogan called for single-digit rates despite soaring inflation.
The bank’s policy committee repeated that inflation of near 85% should give way to a disinflation process. “Considering the increasing risks regarding global demand, the Committee evaluated that the current policy rate is adequate,” it said.
The central bank, seen by analysts to respond to Erdogan’s will, gave no hint at how long it would hold rates stable. Financial conditions continue to support “the sustainability of structural gains in supply and investment capacity,” it said.
All economists in a Reuters poll had predicted the bank would keep its policy rate unchanged. It had eased by 500 basis points in four months citing an economic slowdown, even as central banks around the world raced in the other direction.
Inflation meanwhile has shown little sign of easing, standing at 84.4% in November after coming off a peak of 85.5% in October. It is expected to hit 65-70% in December due to a favourable base effect after last year’s currency crash.
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Prices began surging in autumn 2021, stoked by an unorthodox easing cycle that was urged by Erdogan but that sparked a historic currency crisis late last year.
Erdogan - a self-described “enemy” of interest rates whose economic plan prioritises exports, production and employment - said on Wednesday the central bank had lowered the policy rate to 9% to help investments.
“Investors should not keep crying, saying ‘interest rates are high.’ Here you go, it is 9%. Now invest,” he said, adding this would bring employment, exports and a current account surplus, which Ankara says will permanently lower inflation.
Facing tight elections in May or June, Erdogan’s government has employed a policy of tightly controlling the lira’s foreign exchange rate with indirect foreign exchange sales to the market, and a heavy hand in directing credit in the economy.
Analysts say policy will likely remain steady until the election in May or June, after which it will depend on whether Erdogan is re-elected. The opposition has promised a return to orthodox policies and rate hikes.
The central bank expects inflation to drop to 65.2% by end-2022, thanks largely to base effects in December, compared to a median estimate of 69% in the latest Reuters poll.
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