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Turkey’s Central Bank keeps interest rates steady following Erdoğan and Governor meeting

by Daily Sabah with AA

ISTANBUL Mar 17, 2015 - 12:00 am GMT+3
Photo: Reuters
|Photo: Reuters
by Daily Sabah with AA Mar 17, 2015 12:00 am
The Turkish Central Bank (CBRT) has kept the benchmark interest rate steady at 7.5 percent and the overnight rate at 10.75 on Tuesday afternoon following a presentation by CBRT Governor Erdem Başçı and Deputy Prime Minister Ali Babacan to President Recep Tayyip Erdoğan last week.

"The ongoing cautious monetary policy along with prudent fiscal and macroprudential policies are having a favorable impact on inflation, especially inflation excluding energy and food, which are core inflation indicators, excluding energy and food products. Yet uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy. Accordingly, the committee has decided to keep interest rates at current levels," the bank stated.

"Future monetary policy decisions will be conditional on the improvements in the inflation outlook," the bank added.

It was not predicted by economists that the CBRT would cut interest rates prior to the U.S. Federal Reserve's (Fed) decision to avoid the already strong dollar increasing further against the Turkish lira.

Özden Öntürk, a research expert at ATIG Investment said the market did not expect any change in the interest rate due to the outlook on inflation and pressure on the bank. "The bank has already cut interest rates in recent months and that limits any further move," Öntürk said.

The lira held at about 2.61 to the dollar after the announcement.

Interest rates have been a topic of heated controversy between the government and the central bank since early this year, when Erdoğan criticized the bank for keeping interest rates high. Erdoğan has since claimed on a number of occasions that the rates were limiting economic growth.

Consumer price inflation in Turkey rose less than analysts had forecasted in February, according to the Turkish Statistical Institute. The Consumer Price Index rose 0.71 percent from 1.1 percent in the preceding month and the annual rate of inflation was 7.55 percent.

The government has formulated a Medium Term Economic Plan that forecasts inflation reaching 6.3 percent by the end of the year.

Analysts feel that the goal is achievable and that further cuts in interest rates may be expected in the near future.

"With inflation improving this month, combined with an upbeat global risk appetite, we expect the central bank to continue cutting rates and narrowing the 'corridor,' or the band between the rates, next month and onward," Ziraat Securities economist Bora Tamer Yılmaz told Anadolu Agency.

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