Will Turkey's central bank resist Erdoğan pressure for rate cuts?

Investors are looking for signs that Turkey's central bank will resist pressure from President Recep Tayyip Erdoğan to cut interest rates prematurely and railroad economic growth.

On Wednesday, Turkey’s central bank chief said he expects consumer price inflation to slow in the fourth quarter of the year. 

The bank’s benchmark interest rate of 19 percent will help secure a deceleration in inflation, Governor Şahap Kavcıoğlu said, according to Reuters, which cited two sources who took part in a conference call between Kavcıoğlu and investors on Wednesday.

Turkey’s consumer price inflation rate climbed to 18.95 percent in July from 17.5 percent the previous month. The Turkish Statistical Institute is due to publish August inflation data on Friday.

Investors are concerned that politcal pressure from Erdoğan will force the central bank to approve an early cut in interest rates, which it has kept steady since March even as inflation accelerated. Erdoğan says high interest rates are inflationary and has sacked three central bank governors in the past two years.

Lax monetary policy means estimates for inflation in Turkey have risen to an average of 16.3 percent in August from 11.6 percent in March, according to a monthly central bank survey of market participants. The bank’s own forecast for 2021 inflation is 14.1 percent.

Investors see the level of interest rates in Turkey as key to the fortunes of the embattled lira, which slid to a record low beyond 8.8 per dollar in early June. The currency traded little changed at 8.3 per dollar on Thursday.

The central bank's Monetary Policy Committee next meets on interest rates on Sept. 23.