In May’s Monetary Policy Board meeting, the Central Bank of Turkey (CBRT) left the one-week repurchase rate at 7.5 percent, while keeping overnight lending and borrowing rates at 10.75 percent and 7.25 percent respectively, meeting expectations.
After making its biggest weekly gain in 3-1/2 years last week, the lira was trading at 2.6 against the U.S. dollar on Wednesday, up from a low of 2.74 in April.
In an attempt to keep the lira from falling against the dollar and euro, the CBRT hiked rates in January last year. Ever since then, the central bank lowered rates at a very slow pace. However, the Turkish government isn't pleased with this move as high interest rates weigh down economic growth as well as job creation. Interest rates are one of the hottest topics debated in recent months.
Additionally, discrete monetary policy measures along with prudent fiscal and macroprudential policies are continuing to have a favorable impact on inflation, especially Core inflation, which strips out food and energy prices Turkey’s central bank has reported.
According to the inflation report, high volatility in exchange rates has prevented further improvements in core inflation. This therefore had a role along with other various factors in the committee's decision to keep interest rates on hold.
The Central bank stated that the next interest rate decision will depend on the inflation outlook. If there aren’t any "significant improvements in the inflation outlook" a further change should not be expected, they said.