Turkish bank keeps rates unchanged on inflation fall

Turkey’s central bank left its benchmark interest rate unchanged as expected yesterday after inflation eased from a 15-year peak, but a change in the wording of the bank’s policy statement signalled possible loosening ahead.The one-week repo rate remained at 24%, up 11.25 percentage points since the start of this year to counter soaring inflation and underpin the currency, which at one point lost almost half of its value against the dollar.“The committee has decided to maintain the tight monetary policy stance until the inflation outlook displays a significant improvement,” the central bank’s monetary policy committee said in a statement.In previous statements it said it would maintain the tight stance “decisively”, but that word was absent this time.“The forward guidance by the central bank is absolutely crucial. Any tweak, any change to this sentence is quite critical at a time when the market has already started speculating for a rate cut,” Piotr Matys, Emerging Markets FX Strategist at Rabobank said.The central bank should keep rates on hold at least to the end of the second half of 2019, Matys said, by which time the downturn in inflation could prove sustainable.“If the central bank starts signalling that they may lower the rates in Q1, even in Q2, then the selling pressure on the lira may resurface, which in turn will be negative for inflation.”The currency firmed to 5.3050 against the dollar following the decision from 5.3560 directly before. By 1358 GMT it stood at 5.3285.A lira crisis was sparked this year by concerns about the central bank’s ability to rein in inflation and a diplomatic rift with the US.The calls for lower rates have battered confidence in the central bank’s ability to adequately rein in inflation, which hit a 15-year high of more than 25% in October, way off the official target of 5%.Annual inflation eased in November on the back of tax cuts, discounted products and a stronger lira.That prompted fears among investors over an early loosening of monetary policy. All 20 economists polled by Reuters expected the central bank to keep its one-week repo rate steady. The lira, which has since recovered some losses, is still down nearly 30% this year, deepening worries about the wider impact on the economy and banks.