Andrew Jay Rosenbaum
22 December 2015•Update: 22 December 2015
ANKARA
The Central Bank of the Republic of Turkey on Tuesday announced that it would hold key interest rates at current levels, the bank said in a statement on its website.
The one-week repo rate will be kept at 7.50 percent, and the overnight lending rate at 10.75 percent, the statement by the Monetary Policy Committee said.
The Turkish lira rose to about 2.94 to the dollar immediately after the announcement. The euro moved to about 3.20 against the Turkish currency.
The move surprised economists a majority of whom had forecast a rise in rates and a simplification of the monetary policy structure as promised by the central bank in August. The central bank had also indicated that it would follow the rate increase by the U.S. Federal Reserve on Dec. 16 with a similar move.
"The bank seems more concerned with stimulating growth than with controlling inflation," commented Attila Yesilada, an economist with Global Source Partners in Istanbul, adding that the Fed's rate hike will have an effect on the value of the Turkish lira.
But some economists welcomed the move.
"Fed pressure on the lira hasn't been severe and inflation acceleration has been quite moderate. The markets managed to price Fed's hike almost perfectly. Avoiding hawkish monetary policy is important our days as tricky geopolitical environment and Russia's sanctions could weigh on economic growth in 2016,” Vladimir Miklashevsky, an economist with Danske bank, said.
“A rate increase would have harmed both the sentiment towards economic growth and the real economic expansion through cooling consumption and slowing investments. We see that in the current fragile situation a rate increase would be unnecessary damaging," Miklashevsky added.
But the bank was concerned about market volatility.
"Considering the impact of the uncertainty in global markets on inflation expectations and taking into account the volatility in energy and unprocessed food prices, the committee stated that the tight liquidity stance will be maintained as long as deemed necessary," the bank's statement said.
The bank said that economic growth, maintained by exports supported by rising demand from the EU countries, was favorable, the statement said.
Further, there has been a slowdown in consumer credit thanks to the bank's tight monetary policies, according to the statement.
"Energy price developments affect inflation favorably, while cumulative exchange rate movements delay the improvement in the core indicators. Considering the impact of the uncertainty in global markets on inflation expectations and taking into account the volatility in energy and unprocessed food prices, the committee stated that the tight liquidity stance will be maintained as long as deemed necessary," the statement said.
Some economists found the move difficult to understand, as the Turkish lira was likely to lose support.
"This was an opportunity lost, and people will be struggling to understand/comprehend the CBRT. Inflation is well above target, inflationary expectations are rising and growth surprised on the upside in the third quarter, so why no proper tightening?" asked Timothy Ash, credit strategist with investment bank Nomura in London, in a note published after the announcement on Tuesday.
