Turkey’s central bank left its benchmark interest rate unchanged on Wednesday as inflation accelerates and the weakening of the lira leaves little room for lower borrowing costs that President Recep Tayyip Erdogan is seeking.
The Turkish central bank maintained its benchmark interest rate unchanged in the fourth month on Tuesday as price rises and a weakening of the lira destroyed the recovery from economic pandemic blockages.
The Monetary Policy Committee has maintained the weekly return rate at 19% as forecast by the 21 analysts surveyed by Bloomberg. Turkey’s inflation accelerated faster than all estimates in June as a result of rising global commodity prices and easing coronavirus cuts, leaving little room for a reduction in borrowing costs that President Recep Tayyip Erdogan sought in July or August.
The central bank has said it will maintain its current monetary stance until price growth falls sharply, and has warned of “potential volatility” in inflation over the summer as the economy reopens.
“Current accounts are expected to be in surplus for the rest of the year due to the sharp upward trend in exports and the strong progress of the vaccination program to stimulate tourism activities,” the bank said in a statement along with the rate decision.
Seeing that inflation risks extend in July, a separate survey by 14 analysts showed that most expect a rate cut in the last three months of 2021. Four said the central bank will start easing money in the third quarter.
Morgan Stanley analysts, including Alina Slyusarchuk, announced a 100-point reduction in September, “when tourism-related flows help the FX market.” If inflationary pressures rise, there may be a lower 50-point reduction, or the reduction could be delayed until the fourth quarter, the bank said in an email note prior to the decision.
The lira against the dollar has weakened more than 15% since bank governor Sahap Kavcioglu took office in March, although he has pledged to maintain a positive rate when it adjusts to realized and projected inflation and will maintain a tight policy until the bank’s 5% inflation target. obtained. After the decision the currency changed little. It was 0.3% stronger at $ 8.5993 per dollar in 15:07 local time.
Istanbul economist Haluk Burumcekci expects the monetary authority to increase its forecast for year-end price growth by 2 percentage points at its next Inflation Report meeting. “The central bank has no choice but to maneuver and the only weapon left is to delay expectations of reduced rates,” he said.
According to a survey by central banks in July, market participants expect major inflation to end the year at 15.6%, above the 12.2% forecast. The monetary authority will update its baseline case scenario for the rest of 2021 and for the next two years on July 29. July inflation data will be released on August 3rd.
(Lira reaction updates in the seventh paragraph, analyst citation in the eighth.)