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Turkey's central bank decided to hold its key interest rates and reiterated to maintain tight monetary policy stance until there is a significant improvement in the inflation outlook.
The Monetary Policy Committee on Thursday retained its one-week repo rate at 10 percent. The overnight lending rate was maintained at 12 percent and the overnight borrowing rate at 8 percent.
The central bank had raised the one-week repo rate aggressively by 550 basis points in January to curb the sharp fall in the currency. Now the bank is under immense pressure from the government to loosen the monetary policy.
Given the pressure from the government to lower rates, there still seems to be a fairly high chance that the central bank could do so over the coming months, said William Jackson, emerging markets economist at Capital Economics. In this event, the lira would become more vulnerable to a fresh sell-off.
The bank today said the strong and front-loaded monetary tightening delivered at the January interim meeting has contained the adverse impact of upside risks on the medium term inflation expectations.
The decline in uncertainties and partial improvement in the risk premium indicators reduced the need for an additional tightening in liquidity policy.
Accordingly, the MPC decided to deliver a technical cut in the late liquidity window lending interest rate. The rate was lowered to 13.5 percent from 15 percent.
