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Turkish central bank holds rates, drops policy pledge under new chief

Category: Economy

Date: 2021-04-16T07:59:11+0000
Turkish central bank holds rates, drops policy pledge under new chief

Shafaq News/ Turkey's 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.

Reuters reported the statement of the central bank saying it ditched last month's pledge to "decisively" maintain a tight monetary policy "for an extended period" to address inflation, which has risen above 16% and been in double-digits for most of the last four years.

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 signaled interest rate cuts were on the way.

Erdogan's shock removal last month of Kavcioglu's predecessor Naci Agbal, a respected policy hawk, sent foreign investors fleeing from Turkish assets on concerns that rates would be quickly slashed.

But Kavcioglu - who had previously criticized Agbal's 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.

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.

John Hardy, FX strategy head at Saxo Bank, said to Reuters, the currency had weakened on Thursday because Agbal's pledges were scrapped.

"Any daylight they see, they are going to want to cut rates. Holding them here (today) is just an acknowledgment they can't get away with it for now," he said.

In a Reuters poll, most economists had predicted no change to the one-week policy rate (TRINT=ECI) this week, but saw easing from around mid-year, to settle at 15% by year-end.

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