Turkey central bank keeps key rate unchanged

Central bank’s move defies pressure for rate hike to keep hold on soaring inflation, prompting new slump in lira’s value.

ANKARA - The Turkish central bank on Tuesday kept its key interest rate unchanged, defying pressure for a rate hike to keep a hold on soaring inflation and prompting a new slump in the value of the lira.

The bank said in a statement that it would keep the one week repo rate unchanged at 17.75 percent, despite calls from economists to raise rates.

The lira lost 3.5 percent in value to reach 4.9 against the US dollar after the bank's announcement as markets reacted with disappointment to the decision, which had been seen as a key test of the bank's credibility.

The bank appeared to keep the door open for further hikes saying a "tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement."

Inflation in Turkey was 15.39 percent in June from the same period the year earlier, the highest reading in almost one-and-a-half decades.

But it said that recent data had shown a "rebalancing trend in the economic activity" with "signs of deceleration in domestic demand become more visible" even as external demand remained strong.

Economists had forecast a hike in the range of between 0.75 to 1.50 percent in the rate.

President Recep Tayyip Erdogan's election win on June 24 had spooked investors, especially when he chose his son-in-law and ex-energy minister Berat Albayrak, 40, as treasury and finance minister.

The president had already caused alarm by vowing to have a greater say in monetary policy and continually pressing the bank to reduce rates, in a challenge to the central bank's independent status.

Erdogan wants lower rates to boost economic growth, which has been one of the big successes so far of his 15 year domination of the country.