Turkey’s central bank on Thursday kept its main interest rate unchanged at 17 percent for the second month in a row to support a strong rally of the Turkish lira, Agence France-Presse reported.
It also pledged to keep interest rates high “for an extended period until strong indicators point to a permanent fall in inflation and price stability.”
The consensus was for another pause for the one-week repo rate after two sharp hikes helped the lira rally against the dollar and euro.
The Turkish lira has clawed back more than 20 percent of its value against the dollar since President Recept Tayyip Erdoğan overhauled his economic team and appointed Naci Ağbal as the new central bank governor in November.
However, the annual inflation rate remains stubbornly high, rising to 14.97 percent last month and significantly overshooting the bank’s ultimate goal of 5 percent.
Economists expect consumer prices to continue rising until at least April, and not everyone was impressed by Ağbal’s decision not to hike the rate on Thursday.
“The longer they hold as inflation rises the more Agbal uses up his well of policy credibility,” BlueBay Asset Management economist Timothy Ash said in a note.
But others said Agbal can get away with keeping the key rate steady.
Capital Economics analyst Jason Tuvey said the central bank statement’s “hawkish tone” will “help to support a further rally in the lira over the coming months.”