Turkey’s central bank holds interest rates steady due to inflation risk

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Turkey’s central bank said on Thursday that a recent increase in inflation meant there were risks it could overshoot its year-end projection, as it held interest rates steady for a second consecutive month after a near year-long easing cycle, Reuters reported.

The bank had previously cut its policy rate in nine consecutive meetings from a level of 24 percent as it sought to boost an economy hit by a slowdown in 2019 and then the coronavirus pandemic.

In a statement following its monetary policy committee meeting, the bank said it maintained the view that demand-driven disinflationary effects will become more prevalent in the second half of the year.

“But risks on the end-year projection are considered to be on the upside due to recent realizations in inflation,” it said.

The policy rate is well below Turkey’s annual inflation rate, which rose to 12.6 percent in June, leaving real rates in negative territory.

The Turkish lira, which has weakened 13 percent against the dollar this year but remained largely flat for the last two months, was unchanged at 6.8475 to the US dollar after the announcement.

Fallout from the pandemic brought Turkey’s economy to a near standstill in the second quarter. Most economists expect the economy to contract sharply this year.

In April the central bank trimmed its year-end inflation forecast to 7.4 percent, but it noted at the last monetary policy meeting that there had been some upward pressure on inflation through the coronavirus pandemic.

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