2018.07.2408:20:00UTC+00Turkey Central Bank Unexpectedly Holds Rate Unchanged

Turkey's central bank left its key interest rate unchanged, while economists were looking for a 100 basis points hike.

The Monetary Policy Committee, led by Governor Murat Cetinkaya, decided to keep the one week repo rate constant at 17.75 percent, the Central Bank of the Republic of Turkey, or TCMB, said Tuesday.

Economists had expected a raise in the rate to 18.75 percent. "Despite the milder impact of demand conditions on inflation, elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior," the TCMB said in a statement.

"Accordingly, the Committee assessed that it might be necessary to maintain a tight monetary stance for an extended period."

The latest move to leave the key rate unchanged suggests that President Erdogan is already using his strengthened position to influence monetary policy, Capital Economics economist Jason Tuvey said. "Pursuing looser economic policy will simply exacerbate the vulnerabilities in Turkey's economy and, ironically, increase the market pressure on the Turkish central bank to take emergency action," the economist added. Recent data indicated a more significant rebalancing trend in the economic activity, the bank said, adding that external demand remains strong, while signs of deceleration in domestic demand have emerged.

The TCMB said it will retain the tight policy stance decisively until inflation outlook displays a significant improvement. The bank also said that several key economic indicators will be monitored and further monetary tightening will be delivered, if needed.