Jun 12 2019

Turkish central bank leaves interest rates on hold

Turkey’s central bank left its benchmark interest rate on hold.

The lending rate will remain at 24 percent, the central bank said in a statement on its website on Wednesday.

Turkish policymakers have left rates unchanged since September, when they raised them by 625 basis points to stave off a full-blown financial crisis threatened by a slump in the lira.

"In order to contain the risks to the pricing behaviour and to reinforce the disinflation process, the committee has decided to maintain the tight monetary policy stance," the central bank said in its statement.

The lira fell 0.3 percent to 5.81 per dollar at 2:13 p.m. in Istanbul, reversing gains made in the immediate aftermath of the decision.

Some economists had predicted the central bank might cut interest rates, citing slower inflation and a rerun of an election for the mayor of Istanbul on June 23. Turkey’s government has pressured the bank to keep rates low to help stimulate economic growth.

But political uncertainty in Turkey is high. It is unclear whether the opposition or governing Justice and Development Party (AKP) will win this month's election, or whether the result will stand. Turkey is also embroiled in a spat with the United States over its purchase of S-400 air defence missiles from Russia, which may spark economic sanctions from Washington.

"With uncertainty around the Istanbul election rerun and S-400s, the right thing to do was to hold rates given big concerns about how these two risk events would impact macro financial stability," Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London, said in e-mailed comments to clients. 

Opposition candidate Ekrem İmamoğlu narrowly won an initial vote for Istanbul mayor on March 31, but the election is being held again after the election board agreed with the AKP that there were irregularities in voting procedures.