Turkey’s central bank left its benchmark interest rate unchanged after inflation hit its highest rate in two years, pledging to maintain tight monetary policy while signaling that it could ease when price increases will start to slow.
The Monetary Policy Committee left its one-week repo rate at 19%, as expected by economists polled by Bloomberg and Reuters.
This was the second meeting of the committee chaired by Governor Sahap Kavcioglu, who took over in March. Turkish President Recep Tayyip Erdogan has sacked Kavcioglu’s predecessor after raising rates more than expected to curb double-digit inflation.
Kavcioglu, a former newspaper columnist, wrote in support of a
an unorthodox economic view – adopted by Erdogan – that higher interest rates drive, rather than slow, inflation.
The lira has fallen 13% since Kavcioglu became governor amid fears over the bank’s independence. The governor pledged to maintain tight monetary policy until inflation slows to meet the bank’s 5 percent target.
Consumer prices rose for the seventh consecutive month in April to 17.4 percent, but Kavcioglu said last week that inflation has now peaked.
Jason Tuvey, an economist at Capital Economics, wrote in a note: “As inflation begins to decline over the next few months, we suspect the central bank will start cutting rates to appease President Erdogan.”
In a statement after the rate-setting meeting, the committee said the coronavirus pandemic and the progress of the vaccination rollout in Turkey posed risks to the economy.
About 12% of the population has been fully vaccinated, and the health minister has warned that supply constraints are a problem, forcing the government to introduce a nationwide lockdown to reduce the record number of cases.