Turkey’s central bank holds rate steady, market eyes December cut

By Ezgi Erkoyun and Huseyin Hayatsever

ISTANBUL (Reuters) -Turkey’s central bank held its policy rate steady at 50% on Thursday, as expected, and said it remained attentive to inflation risks, while analysts said its comments opened the way for a possible rate cut next month.

“The level of the policy rate will be determined in a way to ensure the tightness required by the projected disinflation path, taking into account both realised and expected inflation,” the bank said after its monetary policy committee meeting.

The lira traded at 34.4975 against the dollar after the announcement, off its lows but weaker on the day.

“We believe that the central bank’s new statement on the tightness of monetary policy opens the door to rate cuts,” said Haluk Burumcekci, founding partner at Burumcekci Consulting, adding a cut next month was a serious option.

“However, uncertainty remains regarding the size of the initial step and whether it will evolve into a cycle.”

Governor Fatih Karahan said this month that monetary policy would remain tight even when a rate-cutting cycle started, and that keeping the current interest rate amid improving inflation expectations would amount to a tightening.

The central bank has kept rates steady since March, when it raised its policy rate by 500 basis points to round off an aggressive tightening cycle that started in June last year to rein in soaring inflation.

In a change of messaging in September, it began setting the stage for a rate cut by dropping a reference to potential further tightening, but it has continued to voice caution on inflation.

In October, inflation was higher than expected, dipping only to 48.6% annually, underscoring the continuing battle against soaring prices.

A Reuters poll showed the bank was expected to hold rates steady in November, with a rate cut seen in December or January.

Earlier this month, the central bank raised its year-end inflation forecasts for this year and next to 44% and 21% respectively, vowing to keep policy tight to ensure disinflation continues.

The central bank hiked rates by 4,150 basis points between June last year and March as part of an abrupt shift to orthodox policy after years of low rates that triggered a series of currency crashes and sent inflation soaring.

A test of the government’s commitment to taming inflation will come at the end of the year, when it is set to hike the minimum wage.