ISTANBUL- Turkey's central bank held interest rates on Thursday after inflation rose, keeping monetary policy tight in the face of a drive for cheap credit by President Tayyip Erdogan.
The bank is tasked with balancing efforts to keep inflationary pressures in check with Erdogan's calls for lower rates. Erdogan, who wants banks to lend more at lower rates to stimulate the economy, has described himself as an "enemy" of interest rates.
For the third straight meeting, the bank kept its late liquidity window, the highest of the multiple instruments it uses to set policy at 12.25 percent and its benchmark repo rate at 8 percent. All 17 economists polled by Reuters had forecast it would leave the rates unchanged.
"Current elevated levels of inflation and developments in core inflation indicators pose risks on the pricing behaviour," the bank said in a statement following its policy-setting meeting.
"The central bank will continue to use all available instruments in pursuit of the price stability objective."
Annual inflation rose more than expected to 10.68 percent last month, fuelled by rising transport costs and prices of core goods and services. Inflation has now been in double digits for six out of eight months this year and remains one of Turkey's most pressing economic problems.
Following a failed coup last year, the government has rolled out a series of measures to bolster growth, including temporary tax cuts and the expansion of a programme to guarantee loans to smaller businesses.
While the economy in undeniably recovering - government ministers expect growth to exceed 5 percent this year versus a revised 3.2 percent last year - economists have voiced some concern about rising prices.
The central bank's resistance to lifting the repo rate has triggered alarm bells among investors about the extent of its independence amid Erdogan's criticism.
The bank also kept its overnight lending rate at 9.25 percent and overnight borrowing rate at 7.25 percent, as expected.
(Additional reporting by Ezgi Erkoyun; Writing by David Dolan; Editing by John Stonestreet) ((david.dolan@tr.com; +90 212 350 7046; Reuters Messaging: david.dolan.thomsonreuters.com@reuters.net))
