Turkish central bank hikes lending rate, but leaves policy rate on hold

Record ID: 165298

  • Title: Turkish central bank hikes lending rate, but leaves policy rate on hold
  • Date: 24th January 2017
  • Summary: ANKARA, TURKEY (FILE) (REUTERS) EXTERIOR OF CENTRAL BANK BUILDING ENTRANCE OF CENTRAL BANK SIGN OF CENTRAL BANK
  • Embargoed: 7th February 2017 13:50
  • Keywords: Turkey central bank rates interests economy currency foreign exchange
  • Location: ANKARA, ISTANBUL, TURKEY, INTERNET
  • City: ANKARA, ISTANBUL, TURKEY, INTERNET
  • Country: Turkey
  • Topics: Economic Events
  • Reuters ID: LVA00260FXA4T
  • Aspect Ratio: 16:9
  • Story Text:QUALITY AS INCOMING
    Turkey's central bank on Tuesday (January 24) hiked its overnight lending rate by 75 basis points after sharp falls in the lira but left its main policy rate on hold, moves that may not be sharp enough to draw a line under concern about its independence.
    The decision had been seen as a critical test of the bank's credibility. Investors were hoping for a significant rate hike to stem the lira's falls, despite President Tayyip Erdogan's vocal aversion to high borrowing costs.
    The bank raised its overnight lending rate to 9.25 percent from 8.5 percent. All but one of 18 economists in a Reuters poll had forecast a hike in the overnight lending rate, which is the upper band of the bank's interest rate corridor.
    It left its benchmark one-week repo rate at 8 percent. Half of the economists had forecast a hike of 50 basis points.
    "Inflation expectations, pricing behaviour and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered," the bank said in a statement.
    "Moreover, necessary liquidity measures will be taken in case of unhealthy pricing behaviour in the foreign exchange market that cannot be justified by economic fundamentals."
    The lira weakened as far as 3.8299 to the dollar after the announcement.
    "We have a very unpredictable environment for Turkish banks. We expect Turkish lira to weaken further because of this move," Research Director at Is Investment Serhat Gurleyen said.
    The bank also increased the rate at its late liquidity window, where it has been increasingly encouraging lenders to source lira, to 11 percent from 10 percent.
    Most economists had expected an increase in the late liquidity window rate, with estimates ranging between a hike of between 50-300 bps.
    The lira has fallen some 8 percent this year, adding to double-digit declines in 2015 and 2016. Investors have been unnerved by insecurity, political uncertainty and a slowing economy and worry the central bank is less than independent.
    President Tayyip Erdogan, who wants cheap credit to boost growth, has long been opposed to high interest rates and the central bank has resorted to unorthodox liquidity moves, heightening the perception it wants to avoid a sharp rate hike.
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