ISTANBUL: Turkey’s central bank left its key interest rates unchanged for the second straight month on Thursday, navigating double-digit inflation with President Tayyip Erdogan’s calls for cheaper credit. The bank kept its late liquidity window — the highest of the multiple instruments it uses to set policy — at 12.25 percent and left the benchmark repo rate at 8 percent. The decision comes after inflation eased for the past two months after hitting an 8-1/2-year peak in April. It still remains, at 10.9 percent, well above the government’s stated 5 percent target. “Although recent improvements in cost factors and expected partial correction in food prices will contribute to disinflation, current elevated levels of inflation pose risks on the pricing behaviour,” the bank’s monetary policy committee said in a statement. “Accordingly, the committee decided to maintain the tight stance of monetary policy.” The meeting is the third since Turks narrowly backed constitutional changes in an April referendum granting Erdogan sweeping new powers. Erdogan, who calls himself an “enemy” of interest rates, wants to make it cheaper to borrow money, to spur the construction sector and boost growth.
All 15 economists polled by Reuters had predicted the bank would leave the repo rate unchanged, as well as the overnight lending rate, at 9.25 percent, and the overnight borrowing rate, at 7.25 percent. Those rates were also unchanged. The central bank’s resistance to lifting the repo rate has triggered some concern among investors about its independence in the face of criticism from Erdogan. The lira <TRYTOM=D3> firmed slightly to 3.5245 after the announcement from 3.5285 immediately before the decision.