Turkish central bank rules out emergency rate cut

A currency exchange board in Istanbul, Turkey.
Onur Coban | Anadolu Agency | Getty Images
A currency exchange board in Istanbul, Turkey.

In a move set to frustrate Turkey's leaders further, the country's central bank decided Tuesday not to hold an heavily anticipated emergency rate-setting meeting after new data showed the country's inflation fell by less than one percent last month.

According to the official Turkish statistics agency, annual inflation for the month of January fell to 7.24 percent from 8.17 percent in December -- still higher than analysts had expected, but not enough to trigger an emergency monetary policy meeting on Wednesday .

The Turkish Lira, which was trading near record lows against the US dollar, gained strength in reaction to the figures.

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Turkish central bank governor Erdem Basci earlier explained an extraordinary meeting was on the cards should the decline exceed one percentage point. Inflation has consistently come in above the bank's official target of five percent in recent months, resulting in speculation that a rate cut was premature.

"Inflation indicators continue to improve in recent months owing to the implementation of cautious monetary and liquidity policies," the central bank said in a statement Tuesday.

Nonetheless the meeting, which will now take place as scheduled on February 24, comes at a time of tensions ahead of parliamentary elections in June with concerns about the central bank's independence. President Recep Tayyip Erdogan, long a vocal critic of the bank's policies, reaffirmed his frustrations over the weekend.

"They're simply going to drive one mad. They say they will cut interest rates if inflation falls, this is not a proper understanding…this is the wrong logic," he said on Saturday – even though the European Central Bank had cut its interest rates to near-zero after inflation in the euro zone fell into negative territory.

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"It is unlikely Tuesday's decision will calm tensions between the bank and the government," said Ozgur Altug, research chief economist at BGC Partners.

"Case dismissed; problem solved without complicating things further, but politicians will continue to criticize CBT harshly...In that scenario, probably TL (the Turkish Lira) will re-appreciate, but the appreciation could be a limited one."

The central bank surprised markets at its last monetary policy committee meeting on January 20 when it cut rates more than anticipated from 8.25 percent to 7.75 percent.

As a major importer of oil, Turkey's economy has been a beneficiary of the recent slide in crude oil prices, helping ease pressure off an already shrinking current account deficit.

Economic growth in the first nine months of a turbulent 2014 came in below government expectations at 2.8 percent, characterized by weaker investment and private consumption.

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