Turkey’s central bank on Wednesday decided to leave interest rates unchanged but implement two secondary policy measures aimed at supporting the embattled Turkish lira.
The bank said in a statement after its latest monetary policy committee meeting that the one-week repurchase rate would be kept at 7.50 percent, the marginal funding rate at 10.75 percent and the borrowing rate at 7.25 percent.
But it said the remuneration rate for the required reserves maintained in Turkish liras has been raised by 50 basis points and the rates applied to banks’ one week maturity borrowings from the central bank have been reduced.
The measures are aimed at encouraging banks to shift their currency reserves from foreign currency into Turkish lira.
But the set of measures appeared not to impress the markets, putting more pressure on the lira which lost 1.07 percent in value to the U.S. dollar to trade at 2.71 lira to the dollar.
William Jackson, economist at Capital Economics in London, said the bank had “managed to make its monetary policy framework even more complex by tweaking a few obscure tools.”
He said that the actions “are likely to reinforce concerns that the bank is unwilling to defend the lira by raising official interest rates due to government pressure.”
Turkish President Recep Tayyip Erdogan has urged the bank to aggressively slash interest rates to stimulate economic growth ahead of June 7 polls.
The bank’s refusal to do this has infuriated the president and an interest rate rise would likely be the final straw for the Turkish strongman.
The conflict has added to the pressure on the lira, which has tumbled repeatedly to historical lows over the last weeks.
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