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Turkish CB holds Rate at 14% despite Inflation Surge

ISTANBUL, Feb 17 (Reuters) - Turkey's central bank kept its policy rate steady at 14% for the second straight month on Thursday as expected, despite a jump in inflation to nearly 50% after last year's easing cycle triggered a currency crisis.

The bank began easing in September and has cut interest rates by 500 basis points under pressure from President Tayyip Erdogan, whose unorthodox new economic plan prioritises credit, production, exports and employment.

All 20 economists in a Reuters poll forecast the benchmark rate would be left unchanged after the bank previously signalled it would pause the easing cycle to monitor its effects while it conducts a policy review. 

"The comprehensive review of the policy framework is being conducted with the aim of encouraging permanent liraization in all policy tools," the bank's monetary policy committee said.


After the decision, the lira held mostly steady and was slightly weaker at 13.62 versus the dollar at 1141 GMT.

The lira slumped 44% in 2021 on concerns about premature easing but has held steady this year, after costly state interventions in the currency market and a scheme to protect lira deposits against forex depreciation.

Turkey's longer-dated dollar-denominated sovereign bonds were under pressure on Thursday with the 2045 issue down 0.5 cents to trade at 83.36 cents in the dollar, Tradeweb data showed .

Annual inflation soared to a 20-year high of 48.69% in January, leaving real yields in deeply negative territory, which is a red flag for investors and a vulnerability for the lira.

However the central bank expects inflation to fall as the year advances.

"The Committee expects a disinflation process to start on the back of measures taken and decisively pursued for sustainable price and financial stability," the bank said.

Most economists predict inflation will surpass 50% in the coming months and remain close to that level for much of the year, especially if the central bank begins to ease again.

Last month, the central bank doubled its end-2022 inflation forecast to 23.2%, but Governor Sahap Kavcioglu at the time dismissed the notion that the unorthodox rate cuts had fuelled inflation and the lira slide. 

Erdogan's government is hoping that Turks will endure soaring living costs for just a few more months before some inflation relief comes and tourists arrive, helping the economy leave its winter woes behind. 

In recent years, Erdogan has rapidly overhauled the bank's leadership with like-minded officials, undermining its credibility as an independent institution.

Additional reporting by Tuvan Gumrukcu and Can Sezer Writing by Daren Butler Editing by Jonathan Spicer

Source: Reuters

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