Turkish Central Bank Keeps Key Rate Unchanged For Second Time

(RTTNews) - Turkey's central bank maintained its key interest rate for the second straight meeting on Thursday ahead of the presidential election on May 14.

The Monetary Policy Committee of the Central Bank of the Republic of Turkey, or CBRT, led by Governor Sahap Kavcioglu, left the policy rate, which is the one-week repo auction rate, unchanged at 8.50 percent. The move was in line with expectations.

The previous change in the policy rate was in February, when it was lowered by 50 basis points. Under the immense pressure from President Recep Tayyip Erdogan, the central bank had lowered the rate by cumulative 500 basis points last year.

With the support of the integrated policy approach, underlying trend of inflation improved, the central bank said. The committee added that the effect of the earthquake-driven supply-demand imbalances on inflation is closely monitored.

Policymakers viewed that the current policy stance is adequate to support the necessary recovery in the aftermath of the earthquake by maintaining stability.

Earlier this month, official data showed that consumer price inflation slowed to a 14-month low in March. Still inflation remained at an elevated level of 50.5 percent.

The bank repeated that it will continue to use all available tools decisively until there is clear sign of a permanent fall in inflation and the medium-term inflation target is achieved. Further, the bank said it will implement Liraization Strategy.

The key challenge for the central bank currently is to maintain the stability of the exchange rate in the near term, ahead of the elections, ING economist Muhammet Mercan said. The economist noted that the extra fiscal burden of reconstruction costs as well as the central bank's supportive stance will add pressure on the already elevated headline inflation. The economist expects normalization in the conduct of monetary policy in the period ahead.

Alongside parliamentary elections, the presidential election is due on May 14. President Erdogan's call for lower interest rates to support economic growth has forced foreign investors to flee and the currency faced sharp devaluation.