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Turkey central bank rejects snap rate cut after inflation data

Erdogan and his allies have over the last weeks lambasted central bank Governor Erdem Basci

Published: Updated:

Turkey's central bank, under pressure from President Recep Tayyip Erdogan to aggressively lower rates, on Tuesday rejected the option of an unscheduled rate cut as inflation slowed less than expected.

Erdogan and his allies have over the last weeks lambasted central bank Governor Erdem Basci for failing to radically lower interest rates to stimulate faltering growth.

Basci had indicated the bank would make an unscheduled cut this week if January inflation data had shown a sharp slowing.

But in the event, data released by the state statistics office showed January inflation was 1.1 percent from December and 7.24 percent from January 2014, higher than expected.

The bank indicated in a statement on its website that there would be no unscheduled cut and would meet to consider monetary policy at its next scheduled meeting in three weeks.

"Inflation indicators continue to improve in recent months owing to the implementation of cautious monetary and liquidity policies," it said.

"The Monetary Policy Committee will assess the inflation outlook in detail at the regular meeting which will be held on February 24," it said.

Had inflation slowed below the 7.0 percent threshold indicated by Basci, the central bank would have held a meeting Wednesday to discuss a cut.

Erdogan had troubled markets by pushing for aggressive rate cuts at a time when inflation is still relatively high in Turkey.

The Turkish lira gained in value after the central bank's decision, falling 0.32 percent to trade at 2.42 lira to the dollar.

However with legislative elections looming in June, it is unlikely the government will let up at all in its pressure on the nominally independent central bank for cuts.

"The central bank is likely to come under further pressure from the government to lower rates," the London-based Capital Economics consultancy said in a note to clients.

"There's a good chance that the central bank will still lower interest rates at its scheduled meeting later this month," it added.

Turkey's economic performance, which has lagged recently following strong growth over the last few years, is under the spotlight this year as Ankara holds the presidency of the G20 top world economies.