The Central Bank of the Republic of Turkey (CBRT) held all key interest rates steady after the December meeting of the Monetary Policy Committee yesterday. It left its benchmark one-week repo and overnight borrowing rates at 7.5 percent and 7.25 percent, respectively. The bank also kept the marginal funding rate steady at 10.75 percent.

The decision was quite unexpected, since the bank noted several times that it will not make any move before the U.S. Federal Reserve (Fed) realize the long-anticipated rate hike. Last week, the Fed finally lifted its key rate by a quarter-point to a range of 0.25 percent to 0.5 percent, ending an extraordinary seven-year period of near-zero rates that began at the depths of the 2008 financial crisis. The Fed also committed to four more interest rate hikes in the coming year. Analysts were expecting a 50 basis point hike from the CBRT, after the Fed's move. However, the CBRT decided it wouldn't be necessary since the bank already raised the interest rates on dollar-denominated required reserves, reserve options and bank reserves from 0.24 percent to 0.49 percent in reaction to the Fed's decision.

Following the CBRT's announcement, the U.S. dollar jumped from 2.91 to 2.95 against the Turkish lira. The rate ended the day at 2.93. The euro moved to about 3.20 against the Turkish currency and ended the day at 3.23

Speaking to Daily Sabah, Economist and Professor. Kerem Alkin said that since the CBRT has already missed the time period to use its interest rate option to stabilize exchange rates, now it is time for the bank to leave the interest rate package alone. Alkin also added that it would be a bad decision for banks to raise rates now, since other central banks, like that of China, decreases their currencies' value, and enters into devaluation turmoil. If the bank were to increase the rates now, it may result in an over valuation in the Turkish lira. "So, the bank preferred to pass this process steadily," said Alkin.

"Considering the impact of the uncertainty in global markets on inflation expectations and taking into account the volatility in energy and unprocessed food prices, the committee stated that the tight liquidity stance will be maintained as long as deemed necessary," the bank's statement said. The CBRT has not changed any key rates since February. Future monetary policy decisions will be conditional on the inflation outlook, the bank stated and the tight monetary policy stance will be maintained.

The Turkish Central Bank was not alone in keeping rates steady. Norway, Indonesia, Philippines and Ukraine also kept rates steady after the Fed's move. On the other hand, there were countries which preferred to show a reaction by increasing their key rates by 25 points; namely, Mexico, Chile, Saudi Arabia, Kuwait, Bahrain and Colombia.

"The bank seems more concerned with stimulating growth than with controlling inflation," commented Attila Yeşilada, an economist with Global Source Partners in Istanbul, adding that the Fed's rate hike will have an effect on the value of the Turkish lira.

But some economists welcomed the move. "Fed pressure on the lira hasn't been severe and inflation acceleration has been quite moderate. The markets managed to price Fed's hike almost perfectly. Avoiding hawkish monetary policy is important our days as tricky geopolitical environment and Russia's sanctions could weigh on economic growth in 2016," Vladimir Miklashevsky, an economist with Danske bank, said. "A rate increase would have harmed both the sentiment towards economic growth and the real economic expansion through cooling consumption and slowing investments. We see that, in the current fragile situation, a rate increase would be unnecessarily damaging," Miklashevsky added.