Reuters
Istanbul

Turkey’s central bank left interest rates unchanged yesterday, after the US Federal Reserve held fire citing concern over emerging economies, but analysts say the bank will have to hike rates eventually to support the sliding lira and curb inflation.
All 16 economists in a Reuters poll had expected the bank, which has been under political pressure not to raise rates before a November election, to leave its benchmark one-week repo rate unchanged at 7.5% for the seventh month running.
The lira has lost nearly a quarter of its value against the dollar this year, making it one of the worst performers among emerging markets. Earlier this month it touched an all-time low of 3.0699 per dollar. At 1200 GMT it stood at 3.0270, having weakened after the rate decision.
President Tayyip Erdogan has repeatedly called for interest rate cuts and even equated high rates with treason. His comments, and the bank’s refusal to tighten policy, have led to concerns about its independence.
“The Fed’s conspicuous reluctance to hike rates has not improved sentiment towards Turkish assets, and the central bank remains under pressure to tighten monetary policy given the plethora of vulnerabilities in Turkey - not least the lack of inflation-fighting credibility on the part of the central bank itself,” said Nicholas Spiro of Spiro Sovereign Strategy.
The bank kept the overnight borrowing rate at 7.25%, the overnight lending rate at 10.75% and the primary dealers’ overnight borrowing rate at 10.25%.
“Considering the impact of the uncertainty in domestic and global markets on inflation expectations and taking into account the volatility in energy and food prices, the Committee decided to maintain the tight liquidity stance as long as deemed necessary,” the central bank said in a statement.
Consumer price inflation climbed above 7% last month, exceeding forecasts and prompting some economists to lift their year-end estimates for consumer prices.
Consumer confidence has slumped, and international investors are wary ahead of a November 1 election re-run where Turkey’s ruling AK Party is hoping to regain the single-party majority it lost at the polls in June.
The Fed last week kept rates on hold but is widely expected to begin raising them soon. That is seen as increasing the likelihood that emerging markets such as Turkey would have to follow suit to defend their currencies against a surging dollar.