Turkish central bank maintains main interest rates unchanged

Friday 18/12/2015
A surprise to markets

ISTANBUL - Turkey's central bank on Tuesday decided to leave its main interest rates unchanged, surprising markets which had awaited a hike in the wake of the Federal Reserve's historic raise last week.
The bank left its main one-week repurchase rate unchanged at 7.5 percent while for overnight lending the marginal funding rate was left at 10.75 percent and the borrowing rate at 7.25 percent.
Market consensus had been for a hike in the headline repo rate of at least 25-50 basis points.
The Turkish lira immediately lost around one percent in value against the dollar, with markets surprised that the rates had not been lifted in the wake of the Fed's decision on December 16 to lift rates for the first time in nearly a decade.
"The decision was rather unexpected, as almost everybody in the market was expecting the central bank to change its interest rates," said Ozgur Altug, economist at BGC partners in Istanbul.
He said in a note to clients that after the Fed's rate hike "there is no room for easing... (and) in fact, a tighter monetary policy might be required" in Turkey.
The Turkish lira has lost over 25 percent in value against the US dollar since the start of the year with markets unnerved by political uncertainty, the situation in neighbouring Syria and the military's ongoing battle with Kurdish militants.
It has rallied slightly over the last three months, gaining around 3.5 percent against the dollar. But the central bank remains concerned about persistently high inflation, which came in at 8.1 percent in November from the same period the year earlier.
"Future monetary policy decisions will be conditional on the inflation outlook," the central bank said in a statement accompanying its decision.
The bank also promised "simplification steps" for its monetary policy which has been criticised by markets for having overly-complicated multiple interest rates.