Unfazed by 80% inflation, Turkish cenbank to keep rates at 14% again

A logo of Turkey’s Central Bank is pictured at the entrance of its headquarters in Ankara, Turkey October 15, 2021. REUTERS/Cagla Gurdogan

ISTANBUL, Aug 12 (Reuters) – Turkey’s central bank is expected to hold its policy rate unchanged at 14% for an eighth meeting next week, a Reuters poll showed on Friday, in the face of a global tightening cycle and rampant inflation at nearly 80% that shows no signs of falling.

Most economists expect the key interest rate to remain steady through year-end, reflecting no apparent U-turn in President Tayyip Erdogan’s unorthodox economic policy plan.

The central bank paused an easing cycle in January after its cuts totalling 500 basis points last year sparked a currency crisis, sending inflation to 24-year highs, stoked in part by surging energy prices due to Russia’s invasion of Ukraine.

All 14 economists who participated in the Reuters poll expected the central bank to maintain its benchmark rate in the policy-setting meeting next week.

Seven of nine economists polled expect the policy rate to remain at the same level by year-end. One expected a cut to 12% by then, while another foresaw a hike to 20%.

The central bank held rates steady at 14% at the last seven meetings, leaving real rates deeply negative even as a global tightening cycle puts more pressure on the lira.

The bank raised its year-end inflation to 60.4% last month, and saw it peaking near 90% in the autumn. That compares to a year-end forecast median of 70% in the latest Reuters poll and a level of 79.60% announced for July.

Economists say the central bank will not raise rates, with Erdogan having firmed his grasp on the bank after rehauling the bank’s management over the years, including sacking three governors in as many years.

Erdogan, a self-described “enemy” of interest rates, has said his government will not raise rates and will continue to lower them.

Several economists cited the unpredictability of the central bank given Erdogan’s influence and have declined to participate in polls in recent months.

Under the current economic programme, the government wants the private sector to make investments by taking advantage of low rates to increase production, exports and employment.

Ankara expects inflation to drop after it achieves a current account surplus, hopes of which have been frustrated this year as global energy and commodity prices soared.

The lira lost 44% against the dollar last year. It has shed another 27% this year mainly due to concerns about domestic economic policies and global developments.

The central bank will announce this month’s rate decision at 1100 GMT on Aug. 18.

Reporting by Ali Kucukgocmen and Ezgi Erkoyun;
Editing by Daren Butler

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