Turkey's central bank left interest rates unchanged on Tuesday, a surprise move that reignited concern about political threats to its independence and put fresh pressure on the struggling lira currency. Analysts and investors have repeatedly called for a rate hike to rein in inflation and put a floor under the lira, which has been hit by escalating violence in Turkey's mainly Kurdish southeast and by a rumbling dispute with Russia over a downed warplane.
However, the bank (CBRT) held fire for the 10th straight month, even though annual inflation spiked to 8.1 percent in November, well above an official 5 percent target. The CBRT also said it would start to "simplify" policy from its next meeting in January if market conditions are stable enough - a nod to investors who have urged the bank to return to an orthodox system of using a single interest rate rather than its current, complex system of multiple rates.
"Big questions will be raised again about CBRT independence. Even Turkey bulls like myself are left struggling to understand this one," said Timothy Ash of Nomura International. "The CBRT is arguing that simplification might start when volatility ends - that seems like just another excuse, frankly, not to tighten."
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