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The Central Bank of Turkey kept interest rates unchanged at its latest policy-making meeting, but hinted that it is approaching its expected rate cut later this year.
The Central Bank of Turkey maintained its key interest rate at 19% as expected and hinted that it is approaching the rate cut expected later this year, although it nodded to express new pressure on the Turkish lira.
The bank said on Thursday that recent import price pressures pose a risk to inflation expectations and reiterated its commitment to keep interest rates above inflation. It is expected that inflation will remain around 17% for most of the year.
The last time the central bank changed its one-week policy rate was in March, when former governor Naci Agbal raised interest rates to prevent price increases. A poll by Reuters shows that analysts expect inflation to begin to slow in the fourth quarter, when inflation expectations will fall.
After the Fed adopted a tougher tone and President Recep Tayyip Erdogan and US President Joe Biden failed to make a breakthrough in the key dispute, the lira fell 2.5% this week.
The weakness of the lira, which hit an all-time low earlier this month, pushed up inflation through Turkey’s large imports.
The Banking Policy Committee said in a statement: “In addition to recent cost factors based on import prices, demand conditions, supply constraints in certain industries, and high inflation expectations continue to pose risks to pricing behavior and the inflation outlook.” At its monthly meeting. after that.
But it said that earlier rate hikes “continue to curb credit and demand.” “Policy interest rates will continue to be set at a level higher than inflation”, which is consistent with the bank’s prediction that prices will continue to slow in the coming months.
A few months ago
When it hit the market in March, Erdogan appointed him to replace Agbar’s central bank governor Sahapu Kavsioglu, who said that inflation should decline decisively around September. The central bank’s year-end inflation forecast is 12.2%.
Erdogan has repeatedly called for monetary stimulus measures, and pointed out this month that interest rates may be cut in July or August, prompting analysts to warn that premature easing of policies may harm the lira and the economy with heavy foreign debt.
William Jackson, chief emerging market economist at Capital Investment Corporation, said: “Policy makers are currently resisting the political pressure to lower interest rates.”
At 11:48 GMT, the lira is one of the worst performing currencies in emerging markets this year, with the exchange rate against the US dollar falling slightly to 8.644. Earlier this month, it briefly slipped to a record 8.88.
This year’s 13% depreciation accelerated because Erdogan replaced the respected hawk Agbar, which prompted an outflow of foreign investment and further weakened the credibility of the bank that had four presidents within two years.
The World Bank, Fitch Ratings and Goldman Sachs have all stated that the main risks facing Turkey are rapid interest rate cuts and early tightening of policies by the Federal Reserve.
On Wednesday, the US Central Bank-the Federal Reserve-hinted that as the economy recovers from the pandemic, it may raise interest rates in 2023.
Turkey’s US dollar bonds have hardly changed after the interest rate decision, and longer-term bonds still fell by about 0.7 cents against the US dollar, which also reflects the greater pressure on emerging markets after the Fed’s decision.
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