Turkey bank defies Erdogan to hold rates
After several years of surging growth, the Turkish economy has entered a phase of weakness with meagre expansion of 1.7 percent
Turkey's central bank on Wednesday kept its main interest rates unchanged, defying pressure from President Recep Tayyip Erdogan for a cut to stimulate flagging growth.
The bank said in a statement after its latest monetary policy meeting that the one-week repurchase rate would remain at 8.25 percent, the marginal funding rate at 11.25 percent and the overnight borrowing rate at 7.50 percent.
Its meeting came after the Turkish lira hit all time lows in value against the dollar on December 15 and 16 amid concerns about political instability in Turkey and the risk of spillover from the collapse of the Russian ruble.
After several years of surging growth, the Turkish economy has entered a phase of weakness with meagre expansion of 1.7 percent recorded in the third quarter.
Erdogan had on Saturday made a new call for a rate cut from the central bank -- which is nominally independent and is well respected by markets -- and called the high interest rates an "atrocity".
"We need to bring down interest rates to encourage investors," he said.
"Despite low interest rates of around 1 percent in the U.S., Europe and Japan, the (Turkish) central bank's interest rates can go up to around 13 percent," he complained.
"This is an atrocity. To be honest, I did my best but this is one of the areas where I failed to succeed," added the combative president.
In its accompanying statement, the central bank acknowledged the weaknesses in economic activity but indicated it remained concerned about inflation which ticked up to 9.15 percent year-on-year in November.
"External demand remains weak, while the contribution of domestic demand to growth is at moderate levels," it said.
But it added that the "tight monetary policy stance will be maintained... until there is a significant improvement in the inflation outlook."
London-based consultancy Capital Economics said it was possible that interest rate cuts could start to be discussed given the weakness of domestic demand and the prospect of lower oil prices taking the heat out of inflation.
But it added the Turkish rates will likely need to stay high due to the stubborn inflation, the large current account deficit and the continued volatility of the lira.
"If anything... interest rate hikes look more likely than rate cuts," said economist William Jackson, forecasting that headline rates would remain at their current levels throughout next year.