The Turkish central bank should keep its benchmark interest rate on hold at 8.25 percent because of inflationary pressures in the economy, ING Bank said in a report.
“We think the Central Bank of Turkey should signal a wait-and-see period with no imminent rate changes in the near term due to rising risks on the inflation outlook and signs of economic recovery,” ING chief economist for Turkey Muhammet Mercan said in the report on Monday.
Monetary policymakers should also be keeping rates on hold at this week’s meeting due to the need to focus on financial stability, Turkey’s widening current account deficit and already low real rates, Mercan said.
Mercan’s prediction was in line with a Bloomberg survey of economists, which also predicted no change in interest rates.
Turkey’s inflation rate accelerated to 12.6 percent in June from 11.4 percent the previous month and 8.6 percent in October. The central bank has slashed the benchmark one-week lending rate from 24 percent last July, when President Recep Tayyip Erdoğan sacked and replaced its governor for failing to back the government’s pro-growth economic policies.
But the bank kept rates on hold last month citing inflationary pressures. The central bank’s Monetary Policy Committee will meet to decide on interest rates on Thursday.
Economists have said that political pressure on the central bank may mean that policymakers will not raise interest rates even when the outlook for inflation suggests they should.
ING also said the central bank omitted a sentence that the inflation outlook was considered to be in line with inflation projections in a summary of last month’s rates decision. It had included the sentence in its previous summary.
“This likely indicates that the central bank is not as confident as before about its inflation projections and could revise these up in its next report to be released at the end of this month,” Mercan said.