Turkey central bank unexpectedly keeps interest rates on hold; lira gains

Turkey’s central bank left its benchmark interest rate unchanged for the first time in 10 meetings of its Monetary Policy Committee, confounding the predictions of most economists. The lira gained after the decision.

The one-week lending rate will remain at 8.25 percent, the central bank said on Thursday. It cited inflationary pressures and signs of an economic recovery.

Polls of economists conducted by Reuters and Bloomberg had predicted a rate cut of between 25 basis points and 50 basis points, which would have reduced the benchmark interest rate to as low as 7.75 percent.

The central bank has slashed interest rates from 24 percent last July when President Recep Tayyip Erdoğan sacked and replaced its chief for failing to follow government orders to ease monetary policy.

"Pandemic-related rise in unit costs have led to some increase in the trends of core inflation indicators," the central bank said. "The Committee assesses that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery.

"Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance," it said.

The lira gained 0.2 percent to 6.84 per dollar in Istanbul, reversing earlier losses.

Turkey's consumer price inflation has accelerated to 11.4 percent in May from 8.6 percent in October.