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Turkish Central Bank Rebuffs Demand for Emergency Rate Cut

Turkey's Central Bank

Turkey’s central bank, resisting pressure from the country’s president, rejected an unscheduled rate cut as the country’s inflation slowed less than expected.

The bank decided Tuesday not to hold a heavily anticipated emergency rate-setting meeting after new data showed the country’s inflation fell by less than one percent last month, CNBC said.

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, higher than analysts had expected but not enough to justify holding such meeting on Wednesday, the report said.

The Turkish Lira gained in value after the central bank’s decision, falling 0.32 percent to trade at 2.42 lira to the dollar, AFP said.

Central Bank Governor Erdem Basci had indicated the bank would make an unscheduled cut this week if January inflation data had shown a sharp slowdown. But the data released by the state statistics office showed January inflation was 1.1 percent from December and 7.24 percent from January 2014, higher than expected, the news agency said.

The bank indicated in a statement on its website that there would be no unscheduled cut and it would meet to consider monetary policy at its next scheduled meeting in three weeks, the report said.

“Inflation indicators continue to improve in recent months owing to the implementation of cautious monetary and liquidity policies, ” the central bank said. “The Monetary Policy Committee will assess the inflation outlook in detail at the regular meeting which will be held on February 24.”

The meeting will come at a time of tensions ahead of parliamentary elections in June with concerns growing 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, CNBC said.

“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, the report said.

Erdogan has troubled markets by pushing for aggressive rate cuts at a time when inflation is still relatively high in Turkey, according to AFP.

With the elections looming, it is unlikely the government will reduce its pressure on the nominally independent central bank for cuts, AFP said.

“The central bank is likely to come under further pressure from the government to lower rates, ” the London-based Capital Economics consultancy said in a note to clients, the news agency said. “There’s a good chance that the central bank will still lower interest rates at its scheduled meeting later this month, ” it added.

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, CNBC said.

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