Turkey’s monetary policymakers are expected to keep interest rates unchanged at a meeting on Thursday after inflation accelerated to the highest level since April 2019.
President Recep Tayyip Erdoğan reiterated a call for a cut to borrowing costs of 19 percent last week, sparking a sell-off in the lira. The consumer price inflation rate in Turkey rose to 18.95 percent in July from 17.5 percent the previous month, the statistics agency said on Aug. 3.
Economists are unanimous in predicting no change to interest rates at the monthly meeting of the central bank’s Monetary Policy Committee, according to questionnaires by Bloomberg and Reuters. The decision will be published at 2 p.m. local time.
Erdoğan, who holds the unorthodox view that higher interest rates are inflationary, has replaced three central bank governors in just over two years, undercutting the institution’s independence. Şahap Kavcıoğlu, hired as governor in March, has elected to keep borrowing costs unchanged even after inflation accelerated. It stood at 15.6 percent in February.
Last year, the central bank’s lax monetary policy caused a borrowing boom, widening the country’s current account deficit and leading to a spike in inflation. That prompted many Turks to sell the lira for dollars and euros, pushing the currency to successive record lows.
The lira traded little changed at 8.62 per dollar ahead of Thursday’s rates decision.
Rather than cut rates, Kavcıoğlu may change the central bank’s guidance on interest rates, Bloomberg said. The bank could say that it will offer a positive real yield to investors when adjusted for expected inflation rather than current inflation, the news agency said.
Turkey’s consumer price inflation is expected to slow to 16.3 percent by the end of the year and to 12.5 percent in 12 months, according to the average estimate in a monthly central bank survey of market participants.
“There is absolutely no room for a rate cut,” said Selva Demiralp, a professor of economics at Istanbul’s Koç University, according to Bloomberg. “That being said there has been a chronic gap between what the central bank should do versus what they will do for a long time now.”