The CBRT headquarters in Ankara. The bank yesterday held fire for the 10th straight month, even though annual inflation spiked to 8.1% in November, well above an official 5% target.

Reuters
Istanbul

Turkey’s central bank left interest rates unchanged yesterday, a surprise move that reignited concern about political threats to its independence and put fresh pressure on the struggling lira currency.
Analysts and investors have repeatedly called for a rate hike to rein in inflation and put a floor under the lira, which has been hit by escalating violence in Turkey’s mainly Kurdish southeast and by a rumbling dispute with Russia over a downed warplane.
However, the bank (CBRT) held fire for the 10th straight month, even though annual inflation spiked to 8.1% in November, well above an official 5% target.
The CBRT also said it would start to “simplify” policy from its next meeting in January if market conditions are stable enough - a nod to investors who have urged the bank to return to an orthodox system of using a single interest rate rather than its current, complex system of multiple rates.
“Big questions will be raised again about CBRT independence. Even Turkey bulls like myself are left struggling to understand this one,” said Timothy Ash of Nomura International. “The CBRT is arguing that simplification might start when volatility ends - that seems like just another excuse, frankly, not to tighten.”
The CBRT has long faced political pressure to keep monetary policy loose, with President Tayyip Erdogan repeatedly calling for rate cuts and even equating high interest rates with treason.
Just hours after the decision, an aide to Erdogan said the bank still needed to cut rates, in what is likely to be seen by investors as further political pressure on policy.
The bank had previously hinted that it would raise rates in tandem with the US Federal Reserve. Hot on the heels of a Fed hike, yesterday’s meeting was seen as a critical test of the bank’s independence and its governor, Erdem Basci.
Concerns about political pressure have, in part, spurred foreign investors to dump a net $6bn in local bonds this year after at least three years of inflows.
“Monetary policy simplification could begin with the next meeting, if the decline in volatility seen since the start of global policy normalisation is lasting,” the bank said in a statement.
Its benchmark repo rate remains unchanged at 7.5%. It also held its overnight borrowing rate at 7.25% and its overnight lending rate at 10.75%.
Fourteen of 16 analysts polled by Reuters had expected the repo rate and overnight borrowing rate to rise, with most tipping half percentage-point moves.
“Today’s rate-setting decision speaks volumes about the conspicuous lack of inflation-fighting credibility on the part of Turkey’s monetary guardian,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy.