Turkish central bank expected to keep rates steady

Source:Reuters Published: 2014-2-16 23:43:01

Turkey's central bank is expected to keep its key interest rates on hold on Tuesday after a dramatic hike in an emergency policy meeting on January 29 called to halt the sharp slide in the lira, the country's currency.

Despite opposition from Turkish Prime Minister Tayyip Erdogan, the bank raised its overnight lending rate to 12 percent from 7.75 percent, its one-week repo rate to 10 percent from 4.5 percent, and its overnight borrowing rate to 8 percent from 3.5 percent.

All were much sharper moves than economists had forecast and were prompted by fears for the tumbling lira.

The moves resulted in a hike in the average cost of funding for banks to 10.09 percent as of Thursday from 7.26 percent.

All of the 16 economists in a Reuters poll this week said the bank will keep rates on hold at the next meeting on Tuesday.

"The bank will maintain its tight policy stance but will not take a new step after it raised its key rates more than expected in its last interim meeting and simplified its operational framework," said ING Bank economist Muammer Komurcuoglu.

Markets were firm on Friday. The lira traded at 2.1880 to the dollar, from 2.1968 late on Thursday. It had touched a record low against the dollar at 2.39 on January 27.

The main Istanbul share index rose 0.96 percent to 64,380.68 points, broadly in line with the wider emerging markets index, which rose 0.66 percent.

The yield on the 10-year benchmark bond fell to 10.10 percent from 10.17 at Thursday's close.

The bank increased rates after the lira repeatedly tumbled to record lows in a fallout from a corruption scandal that shook the political establishment and dented investor appetite.

When the corruption scandal erupted on December 17, the currency was already under pressure from the global impact of a cut in US monetary stimulus, which has seen Turkey enjoy an inflow of cheap foreign capital to fund its gaping current account deficit.


Posted in: Markets

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