Central Bank of Turkey : staying put, taking markets by surprise

The Central Bank of Turkey (CBRT) defied expectations by leaving the policy interest rate (the one-week repo auction rate) unchanged, at 17.75 percent. Markets broadly expected a minimum of 100 bp hike, given the context of a 14-year high inflation level (15 ,4 % y/y in June) and tumbling lira. The TRY reached 4.9 against 1 USD following the decision: today’s decision raised markets’ concerns regarding the independence of the CBRT , as President Erdogan, governing with sweeping power after the June General Elections, is a self- proclamed “enemy of interest rates” .