Turkey’s central bank, in an unexpected move, held interest rates steady, defying the already historically low Turkish lira on Tuesday.
The main rates — overnight lending, overnight borrowing and the one-week benchmark repo rate — were kept at 8.5 percent, 7.25 percent and 8 percent, respectively.
The Turkish lira has depreciated by 17 percent against the dollar this year alone, which saw a military coup attempt in mid-July. Turkey’s anti-coup dragnet, or what many call a colossal purge of opponents, has resulted in the seizure of 700 companies that previously belonged to the government’s perceived enemies, and the followers of the Gülen movement in particular.
One of this year’s weakest performing emerging market currencies, the lira fell from 3.5095 to 3.5440 against the US dollar immediately after the decision to maintain the current rates and recovered some of its losses to be traded at around 3.53 late in the day.
The decision came days after the national statistics agency reported a 1.8 percent contraction in Turkey’s GDP year-on-year in the third quarter, the first shrinkage in the past seven years.
The bank, which was under pressure from President Recep Tayyip Erdoğan for its monetary policies, raised rates last month for the first time in nearly three years to stem further losses in the value of the lira last month. Economists were expecting a similar move from this month’s Monetary Policy Committee meeting on Tuesday.
Erdoğan has long been championing low interest rates and thus cheaper credit, arguing that monetary policies supporting the opposite have caused the lira to weaken.
Yet, orthodox economists and market analysts state that the lira’s fall stems from a capital exodus from emerging markets to the US in light of Fed rate hikes and from Turkey’s own political turmoil.