Turkey central bank keeps rate on hold despite currency drop

ISTANBUL (AP) — Turkey’s Central Bank kept its key interest rate on hold at 10.25% on Thursday, despite market expectations for an increase that would help support the currency.

The bank surprised last month with a 2 percentage point rate increase, its first hike in two years, as it tried to contain inflation and prop up the Turkish lira.

The currency has lost some 24% of its value against the dollar since the beginning of the year, hitting record lows.

The lira had traded higher this week ahead of the central bank decision. After the bank’s decision, the lira resumed its drop and was trading at around 7.96 against the dollar.

Explaining its decision, the bank said in a statement that financial conditions had already tightened significantly. It said it would continue liquidity measures to combat inflation.

The bank has been resisting pressures to increase interest rates despite high inflation and a wide current account deficit, in line with Turkish President Recep Tayyip Erdogan’s aversion to high rates.

Lower interest rates tend to weaken a currency but can boost economic growth and inflation.

In 2018, the bank had raised interest rates to 24% after a diplomatic row with the United States saw the lira’s value nosedive. That caused a spike in inflation and widespread criticism that the bank had acted too slow to tighten monetary policy.

Erdogan fired the central bank governor 10 months later and the bank then gradually began reducing the benchmark rate, down to 8.25% until last month’s hike.