A money changer uses a machine to count Turkish liras in the border city of Hatay yesterday.
ANKARA: Turkey’s central bank announced yesterday that it decided to keep its key interest rates unchanged, as pressure on the lira has relented and the outlook for the economy brightened.
In a statement posted on its website, the bank said the benchmark one-week repo rate was kept at 4.50 percent while the overnight borrowing and lending rates were left at 3.50 percent and 7.75 percent respectively.
Turkey has been buffeted by market turmoil in recent weeks along with a number of other emerging markets as many investors pull out funds in anticipation of a withdrawal of US monetary stimulus, as well as the crisis at its doorstep Syria. However, that pressure has relented in the past week, with the lira strengthening from 2.05 to the dollar to around 2.00.
Central bank Governor Erdem Basci said last month that he would not use interest rates to shore up the lira, but has intervened on the foreign exchange market.
The central bank, statutorily independent, has been under pressure from Prime Minister Recep Tayyip Erdogan’s government which had said repeatedly that the bank would do everything necessary to hold interest rates down to sustain growth which has slowed sharply in recent years.
But growth accelerated in the second quarter to 4.4 percent on an annual comparison, from 2.9 percent in the first quarter.
Analysts have expressed concern about Turkey as it is dependent upon foreign funds to cover its big current account deficit.
The central bank’s announcement yesterday came after its monthly monetary policy committee meeting, which economists said was a “non-event,” suggesting that the bank pursued a “wait and see” policy ahead of action by the US Federal Reserve.
At Capital Economics in London, emerging markets economist, William Jackson said policymakers in Turkey appeared to be waiting to see how the financial markets would react to Wednesday’s meeting, at which the US Fed was likely to announce the tapering of its quantitative easing programme.
“This reaction is highly uncertain, but the bigger picture is that Turkey is one of the most vulnerable EMs (emerging markets) to tighter global monetary conditions,” he said. “This means interest rates may ultimately need to be raised further and the economy is likely to tread a bumpy path.”
At Finansbank, economist Gokce Celik said that the central bank’s “no change in rates” matched market consensus and added that the central bank apparently chose the “wait and see option”.