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Turkey keeps main interest rate unchanged
ANKARA, Jan 16, 2019 (BSS/AFP) – Turkey Wednesday kept its main interest rate
unchanged for a third time since a dramatic hike in September, in line with
market expectations and helping the lira rally against the dollar.
The central bank said in a statement on its website that the one-week repo
rate would remain at 24 percent. Inflation in Turkey remains in double-
digits.
The Turkish lira, which has been trading at more than 5.5 against the
dollar in the past couple of weeks, gained over one percent to 5.3 after the
announcement at 1100 GMT.
The consensus had been for the rate to stay at 24 percent amid fears a cut
would cause further weakness in the lira.
The bank said its policy committee “decided to maintain the tight monetary
policy stance until the inflation outlook displays a significant
improvement”.
It added that “if needed, further monetary tightening will be delivered”.
Consumer price inflation hit 25.24 percent in October, the highest level
since 2003, before falling to 20.3 percent in December.
Turkey suffered a currency crisis in August during a diplomatic spat with
the United States over the detention of an American pastor, later released,
as well as concerns over domestic monetary policy under Turkish President
Recep Tayyip Erdogan.
Erdogan has railed against high interest rates, describing them as the
“mother and father of all evil”.
At one point during the US-Turkey row, the lira traded to lows around seven
against the dollar.
But after the lira’s dramatic fall in the summer, the bank made an
aggressive rate hike in September of 625 basis points (6.25 percentage
points) to 24 percent.
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Economists including Inan Demir of Nomura expected the central bank to keep
the rate constant but London-based Capital Economics had warned of a
potential 50 bps cut.
Demir said before the announcement the case for a cut had been “weakened”
by fresh US-Turkey tensions over a Washington-backed Syrian Kurdish militia
Ankara views as terrorists.
Although the dispute has since eased, US President Donald Trump on Sunday
warned Washington would “devastate Turkey economically” if Ankara attacked
the Kurdish People’s Protection Units militia (YPG) in Syria.
BSS/AFP/SR/1850 HRS