Turkey's lira jumps 1 pct after cenbank holds rates

Turkey's central bank on Aug. 12 kept its one-week repo rate – also known as the policy rate – steady at 19%, in line with market expectations, for the fifth month in a row.

Thursday August 12 2021 04:39 pm

Duvar English - Reuters

Turkey's lira hit session highs on Aug. 12 after the central bank kept the key interest rate unchanged, resisting pressure to cut rates from the country's president.

Turkey's one-week repo rate was left at 19%, as expected, and the central bank said it would maintain a tight stance until inflation falls significantly. Consumer prices rose to 18.95% last month.

The lira jumped 1.2% against the dollar, rising from one-month lows hit last session.

"Unfavorable effects of weather conditions in major agricultural commodity-exporting countries are observed in global food prices," the bank said.

Saying that the monetary tightening has a decelerating impact on credit and domestic demand, the bank noted: "Taking into account the high levels of inflation and inflation expectations, the current tight monetary policy stance will be maintained decisively until a significant fall in the Inflation Report’s forecast path is achieved."

At the beginning of this year, the policy rate was 17%, and in March the bank raised the rate to 19%.

"Investors probably breathed a sigh of relief that, for now at least, the central bank has shrugged off President [Recep Tayyip] Erdoğan's calls for interest rate cuts," said Jason Tuvey, senior emerging markets economist at Capital Economics.

"With inflation likely to remain elevated over the coming months and the economy having bounced back quickly from May's lockdown, an easing cycle is unlikely to commence until the tail end of 2021."

The lira is the worst-performing EM currency so far this year, down 13%, largely in response to Erdoğan's interference in monetary policy with the ouster of a hawkish central bank chief earlier in the year dealing a major blow.