Turkey’s Central Bank Holds Key Rates For Sixth Month

The Monetary Policy Committee said in a statement on the central bank’s website that it kept the…

Turkey’s central bank held interest rates on Tuesday after a drop in food and energy prices eased inflationary pressures, maintaining a cautious stance with one eye on political tensions that have driven the lira to record lows.

The overnight lending rate – the rate which determines the cost of overnight loans to banks – is expected at 10.75 percent and the overnight borrowing rate at 7.25 percent.

The list of nine technical adjustments fell short of investor expectations that Turkey’s central bank would be moving toward simplifying its monetary policy framework, one of the world’s most complex.

The Turkish currency slipped to a record low of 2.8944 per greenback, down by nearly 1% from Monday’s closing value of 2.8655.

As part of its effort to simplify a complex set of policy tools, Turkish policy makers plan to use the benchmark one- week repo rate as an anchor and narrow its interest rate corridor toward a single rate, the central bank said.

Moments after its rate decision, the central bank also published a road map for policy normalization, which Mr. Basci had flagged last month.

“There remains underlying political pressure against a rate hike and the latest inflation data showing weaker core inflation bought the bank some breathing space”, said William Jackson of Capital Economics in London.

The bank’s decision had been forecast by the largest number of analysts before the decision.

Prime Minister Ahmet Davutoğlu is expected on Tuesday to relinquish the mandate to form the next government after coalition talks failed, raising the prospect of another parliamentary election in the autumn after June’s indecisive vote.

Chiara Albanese contributed to this article.