Inflation delays start of Turkey's rate cuts

Inflation delays start of Turkey's rate cuts
With inflation rising, Turkey has chosen to keep its policy rate unchanged, to combat rises in the cost of living.
2 min read
Inflation is at a two-year high in Turkey [Getty]

Turkey's central bank on Wednesday left its policy rate unchanged for the fourth month running as a spike in inflation to a two-year high delayed hopes of borrowing costs being lowered.

The bank said it will focus "decisively" on fighting rises in the cost of living and declines in the value of the lira before lowering its benchmark interest rate from 19 percent.

It also reaffirmed that it will keep its policy rate above that of inflation, whose annual rate reached 17.5 percent last month.

"We think that an easing cycle is unlikely to begin until late this year," Capital Economics analyst Jason Tuvey said in a research note.

The bank's decision came despite nagging pressure from President Recep Tayyip Erdogan to lower borrowing costs as quickly as possible to improve Turkey's growth potential.

Analysts say that Turkey's economy may have shrunk in real terms over the past two months because of a new wave of coronavirus restrictions.

Those measures have since been lifted and the bank said "domestic economic activity is strong".

But it warned that inflation expectations remain high and tight monetary policy will continue until "a significant fall" in consumer prices is achieved.

Erdogan had said last month it was "imperative" for the bank to start lowering rates in July or August.