Turkish central bank leaves rates on hold as election looms

Turkish central bank leaves rates on hold as election looms

ISTANBUL - Reuters

HDN Photo

Turkey’s Central Bank left key interest rates unchanged on April 22, holding fire ahead of a June parliamentary election, even as the lira’s slide to record lows risks fuelling inflation.

However the Bank took steps on liquidity management, making a “measured cut” in its forex depo lending rate, the rate at which banks can borrow emergency dollar funds, and hiking the amount it pays banks on lira reserves.

The moves aim to ease some of the pressure on Turkey’s currency by encouraging lenders to hold more lira with the Central Bank, while boosting dollar liquidity.

President Recep Tayyip Erdoğan, a vociferous advocate of lower rates, has halted public criticism of the bank in recent weeks after his comments sparked concern about political meddling in monetary policy and a sell-off in the lira.

The Bank left the one-week repo rate at 7.50 percent and the overnight borrowing rate at 7.25 percent.

The overnight lending rate remained at 10.75 percent and the primary dealers’ overnight borrowing rate at 10.25 percent. All 16 economists in a Reuters poll expected the bank to leave rates on hold.

“A measured cut in the forex deposit lending rates and a measured hike in the partial remuneration rate on Turkish lira required reserves will support financial stability,” the Central Bank said in a statement.

The lira, which has slid as much as 14 percent against the dollar this year to a record low of 2.7305 last week, weakened slightly to 2.6975 after the decision.

The currency’s weakness has been exacerbated by uncertainty over the election outcome and whether the polls will result in a coalition government or enable Erdogan to fulfill his goal of creating an executive presidency.

The Central Bank has also been reluctant to defend the lira by selling dollars and eating into its $35 billion net forex reserves.