{"id":121330,"date":"2021-04-15T13:23:59","date_gmt":"2021-04-15T13:23:59","guid":{"rendered":"https:\/\/precoinnews.com\/?p=121330"},"modified":"2021-04-15T13:23:59","modified_gmt":"2021-04-15T13:23:59","slug":"turkish-central-bank-holds-rates-drops-policy-pledge-under-new-chief","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/turkish-central-bank-holds-rates-drops-policy-pledge-under-new-chief\/","title":{"rendered":"Turkish central bank holds rates, drops policy pledge under new chief"},"content":{"rendered":"
ISTANBUL (Reuters) -Turkey\u2019s central bank held rates steady at 19% as expected on Thursday and dropped a pledge to tighten policy further if needed, in its first decision since President Tayyip Erdogan fired the hawkish former governor and sparked a market selloff.<\/p> In a statement, the bank also ditched last month\u2019s pledge to \u201cdecisively\u201d maintain a tight monetary policy \u201cfor an extended period\u201d to address inflation, which has risen above 16% and been in double-digits for most of the last four years.<\/p>\n The lira slipped as much as 0.7% to 8.125 versus the dollar after the bank under new governor Sahap Kavcioglu replaced the hawkish guidance with a softer assessment of risks to inflation that analysts said signalled interest rate cuts were on the way.<\/p>\n Erdogan\u2019s shock removal last month of Kavcioglu\u2019s predecessor Naci Agbal, a respected policy hawk, sent foreign investors fleeing from Turkish assets on concerns that rates would be quickly slashed.<\/p>\n But Kavcioglu – who had previously criticised Agbal\u2019s rate hikes – has since promised no abrupt changes. Those assurances as well as the more-than 10% lira selloff had convinced analysts that policy would remain steady for now.<\/p>\n The central bank said it maintained a tight stance in the face of lofty inflation expectations, adding rates would remain above inflation until it is clear that price pressure is easing.<\/p>\n John Hardy, FX strategy head at Saxo Bank, said the currency had weakened on Thursday because Agbal\u2019s pledges were scrapped.<\/p>\n \u201cAny daylight they see, they are going to want to cut rates. Holding them here (today) is just an acknowledgment they can\u2019t get away with it for now,\u201d he said.<\/p>\n In a Reuters poll, most economists had predicted no change to the one-week policy rate this week, but saw easing from around mid-year, to settle at 15% by year-end.<\/p>\n Last month, the central bank under Agbal had raised rates by a more-than-expected 200 basis points to levels last touched in mid-2019 to dampen inflation and support the currency.<\/p>\n Before taking the job, Kavcioglu had said such a policy was wrong for Turkey and also espoused Erdogan\u2019s unorthodox view that high rates cause inflation.<\/p>\n Erdogan has repeatedly called for monetary stimulus to help the economic rebound. He has fired three bank chiefs in two years, eroding monetary credibility.<\/p>\n The lira plunged 15% immediately after Agbal\u2019s dismissal before a rebound, and foreign investors dumped the most bonds and stocks in 15 years over the following week.<\/p>\n Depreciation boosts inflation via imports, delaying any rate cut plans, analysts say.<\/p>\n Inflation is expected to reach as much as 19% before mid-year. Yet few analysts see another rate hike given Erdogan\u2019s repeated calls for stimulus – including one this month for single-digit rates.<\/p>\n The change in tone under Kavcioglu reflects \u201cpreparation being made to cut the policy rate,\u201d said Haluk Burumcekci of Istanbul-based Burumcekci Consulting.<\/p>\n Ratings agencies say premature easing could again hammer the lira and raise risks of a balance-of-payments crisis given Turkey\u2019s depleted FX reserves and its $160 billion in short-term foreign debt.<\/p>\n Citing sources, Reuters reported Erdogan ousted Agbal in part because he was uncomfortable with the bank\u2019s investigation into some $128 billion in FX sales undertaken during his son-in-law Berat Albayrak\u2019s stint as finance minister.<\/p>\nUNORTHODOX MONETARY VIEW<\/h2>\n