Turkish Central Bank Holds Interest Rates in Surprise Move

Turkey's central bank has made an interest rate decision that has surprised many people. REUTERS/Murad Sezer

ISTANBUL, Dec 22 – Turkey’s central bank left its main one-week repo interest rate unchanged at 7.5 percent on Tuesday, a surprise move likely to heighten concern about threats to its independence and heap more pressure on a struggling lira currency.

Analysts and investors have repeatedly called for a rate hike to rein in inflation and put a floor under the lira, which has been hurt by escalating violence in the country’s southeast and by a rumbling dispute with Russia over a downed warplane.

The bank has long faced political pressure to keep monetary policy loose, with President Tayyip Erdogan repeatedly calling for rate cuts and even equating high interest rates with treason.

The bank had previously hinted that it would raise rates in tandem with the U.S. Federal Reserve. Hot on the heels of a Fed hike, Tuesday’s meeting was seen as a critical test of the bank’s independence, and that of its governor, Erdem Basci.

Fourteen of 16 analysts polled by Reuters had expected the repo rate and overnight borrowing rate to rise, most tipping half percentage-point moves.

The bank also held its overnight borrowing rate at 7.25 percent and its overnight lending rate at 10.75 percent.

Concerns about political pressure on monetary policy have spurred foreign investors to dump a net $6 billion in local bonds this year, after at least three years of inflows.

The lira weakened immediately after Tuesday’s rates announcement and traded at 2.9348 to the dollar at 1215 GMT, from Monday’s close of 2.9130.

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