Investors have been hoping the governing AK Party’s election setback this month could give the central bank some much-needed breathing space. President Tayyip Erdogan had repeatedly called for sharp rate cuts in the run-up to the June 7 parliamentary election, even labeling those who defended high rates as traitors.
That unnerved investor confidence and has raised concerns about political meddling in monetary policy. But the AK Party Erdogan lost its single-party rule for the first time since coming to power in 2002. It is now looking for a junior partner to form a coalition government.
“Of course we maintain to the end our view regarding lowering interest rates. It would be beneficial for the economy for interest rates to fall in Turkey,” Economy Minister Nihat Zeybekci told reporters in parliament.
“I think that with the formation of a government an appropriate atmosphere will be established much more quickly and the central bank’s hand will be strengthened.”
All 18 economists polled by Reuters expect the central bank to keep rates on hold, keeping the one-week repo rate at 7.50 percent and the overnight borrowing rate at 7.25 percent.
“We think it’s too early to expect any move from (the central bank),” financial services firm TEB said in a note to clients.
“While market expectation is also for no change in rates, a more cautious tone will be expected in the statement.”
Separately, data showed that consumer confidence ticked higher in June, rising to 66.45 points from 64.29 points in May, although that still decidedly negative as anything below 100 denotes a pessimistic outlook.
Turkish markets were bolstered by optimism about the possibility of a last-minute deal that would allow Greece to avoid default. The lira was at 2.6720 to the dollar, its strongest in about two weeks, while the BIST 100 stock index was 1.5 percent firmer.
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