By Joshua Kirby
Turkey's central bank held its key policy rate in place, signalling little deviation from its course under new governor Fatih Karahan.
The bank's policy committee decided at its meeting Thursday to keep its benchmark interest rate at 45.0%, ending a cycle of successive hefty rate increases started last June, as it suggested it would do at last month's meeting. The decision is in line with economists' expectations, according to a poll compiled by FactSet.
At the beginning of February, Governor Hafize Gaye Erkan resigned abruptly after just eight months in office, citing media attacks on her and her family, but her replacement Karahan looks set to stick with the more orthodox policy of high interest rates that started under Erkan's governorship last year.
Rates will be maintained at their current high level until underlying inflation falls markedly and in a sustained manner, the bank said.
"The [policy] committee will determine its policy decisions in a way that will create monetary and financial conditions necessary to ensure a decline in the underlying trend of inflation," it said.
Any fresh increases to the key rate are very unlikely, but cuts are still a long way in the future, said Bartosz Sawicki, market analyst at fintech firm Conotoxia.
"It remains to be seen whether aggressive tightening will decisively tame Turkey's long-standing inflation problem," Sawicki said in a note.
"Karahan [has] followed his predecessor's guidance that the tightening cycle had been completed in January," he added.
The central bank last month said the tighter monetary environment brought about by successive interest-rate increases had been achieved.
Annual consumer-price inflation ticked a little higher to nearly 65% at the start of the year, though there were encouraging signs that underlying price rises are beginning to ease. The bank's target is for inflation to come down to 5% in the medium term.
Price inflation has wreaked havoc on the Turkish economy in recent years but it was only last year, under Erkan, that the central bank began to take the usual approach of raising interest rates in response.
Soaring inflation and a crisis in the Turkish lira--which has depreciated sharply against the dollar in recent years--came amid President Recep Tayyip Erdogan's insistence on keeping interest rates low. Against accepted economic wisdom, Erdogan said a focus on promoting growth via low rates and easy money supply would eventually lead to lower inflation. His government only decided to change tack last year after the president's re-election was threatened by Turks' frustration against the country's dire economic straits.
Investors and analysts largely reacted with relief at the appointment of Karahan, who as a former deputy governor of the central bank and a former economist at the Federal Reserve Bank of New York holds a resume similar to that of his predecessor. The sixth bank chief in five years, Karahan is expected to continue the path of orthodox policy charted by Erkan.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
02-22-24 0642ET
