Turkish Central Bank holds benchmark rate at 6.5 percent

Turkey’s Central Bank held its benchmark interest rate at an all-time low for the third month to help economic growth, even as inflation accelerated to its fastest pace in a year.

The bank in Ankara kept its overnight borrowing rate at 6.5 percent, the lowest level since Turkey began inflation targeting in 2002, according to an e-mailed statement on Tuesday. That matched the estimate of all 13 economists surveyed by Bloomberg.

The Central Bank had reduced the benchmark by a total of 10.25 percentage points, making the final of 13 cuts in November, as inflation slowed and the economy fell into recession. The bank said in the statement it will keep rates “at low levels for a long time” even as inflation accelerated in December and January.

“They still seem to be dovish on inflation and the global outlook looks a lot more tricky than it did three months ago,” said Timothy Ash, global head of emerging-market research and strategy at Royal Bank of Scotland Group Plc in London. “Time will tell if the bank’s right.”

The lira rose 0.7 percent to 1.5067 per dollar at 8:06 p.m., little changed from 1.5073 before the decision.

Economic growth slowed to 2.3 percent in the third quarter from the previous three months. Gross domestic product increased a quarterly 6.7 percent in the April to June period, when it emerged from four straight quarters of contraction.

Higher taxes and unprocessed food prices will bring higher inflation this month, the bank said in the statement. The bank’s measure of core inflation may rise “until the middle of the year,” then slow below medium-term goals, it said.

Inflation accelerated to 8.2 percent in January from 6.5 percent a month earlier, the state statistics agency said on Feb. 3. A day later the central bank forecast even faster inflation in February and said core inflation measures show consumer price rises will start to slow again. The rate had dropped to a 39-year-low of 5.1 percent in October.

“It still strikes us that the Central Bank is really in no mood to move to quickly hike rates, and that the market is still too aggressive in assuming 150-200 basis points in rate hikes over the next year, and 400 basis points + over a 24 month horizon,” Timothy Ash, head of Central and Eastern Europe research at Royal Bank of Scotland, wrote in a note to investors