Turkey’s central bank suspends interest rates without change | Business and Economic News

The Turkish central bank decided to take a break from the easing cycle, which began in September and saw the lira fall.

The Turkish central bank ended its last policy meeting by maintaining interest rates, halting the downward cycle that began last September, economists warned that the country was plunged into a deep economic crisis and eroding confidence in the bank’s ability to control inflation.

The central bank on Thursday voted to keep its benchmark interest rate at 14 percent. This move was highly anticipated at the end of last year as a reduction in interest rates pushed by Turkish President Recep Tayyip Erdogan lowered lending costs by 5 percentage points and affected the number of lira that saw the Turkish currency fall.

Erdogan emphasizes that lower borrowing costs dominate inflation – a view that runs counter to the main economic theory that lowering interest rates fuels inflationary pressures.

The bank said on Thursday it had decided to keep rates stable “because of the growing geopolitical risks”, referring to the ongoing tensions over Turkey and its NATO allies and Russia’s Ukraine.

Inflation and credibility

Turks have struggled with rising prices for goods and services, including essentials such as food and fuel.

The central bank said it was continuing to work towards a 5 per cent inflation rate. He has a long way to go. Turkey’s official annual inflation rate was 36% in December, the highest level in almost 20 years. Independent estimates put inflation at 83 percent.

Ahead of Thursday’s policy-setting meeting, Erdogan said central bank officials were likely to interrupt the final easing cycle, and said he would still like to see interest rates lower, now advocating a “gradual and non-gradual” downgrade. presaka ”.

Erdogan has fired three central bank chiefs in the past two years and handed over pink documents to other monetary policy makers, moves that have damaged the central bank’s credibility in the face of foreign investors.

At the end of last year, Erdogan appointed Nureddin Nebati as Finance Minister. Nebati, a staunch supporter of what he called Turkey’s unorthodox economic plan, said Erdogan had promised to start lowering inflation this year and promised to include single figures in 2023 when voters had to go to the polls for the presidency and parliamentary elections.

But many Turkish economists predict that the official inflation rate will rise to 50 percent this year if the central bank does not raise borrowing costs.

Erdogan said Turkey is embroiled in an “economic war of independence” against global forces manipulating Turkey’s exchange rate. The pound lost 44 percent of its value last year against the U.S. dollar, and in December it dropped 18 pounds to $ 1.

It has since regained some of its value after Turkey introduced a scheme to guarantee bank deposits in Turkish lira.

Economists have questioned how the government will pay for the program, as the central bank’s foreign reserves have plummeted in recent months as it has intervened in the lira’s foreign exchange protection markets.

This week, Turkey signed a three-year $ 5 billion foreign exchange deal with the Basque Country, and Ankara is in talks with Azerbaijan to get a $ 1 billion foreign currency from Baku. Turkey already has similar agreements with Qatar, China and South Korea, totaling about $ 23 billion.

However, although Turkey’s foreign exchange reserves were around $ 110 billion earlier this month, liabilities are roughly $ 56 billion negative, the lowest in 20 years.