Turkish Central Bank Keeps Rate Band Unchanged to Slow Inflation

Turkey’s central bank kept its so-called interest-rate corridor unchanged as it seeks to support the lira and slow inflation.

The bank left the benchmark one-week repo rate at 5.75 percent, it said on its website today, matching forecasts by all 10 economists surveyed by Bloomberg. It also kept the maximum rate on overnight loans at 11.5 percent, in line with predictions by banks including JPMorgan Chase & Co., Morgan Stanley and Royal Bank of Scotland Group Plc.

Central bank Governor Erdem Basci varies interest rates daily within those boundaries. He tightened policy last week after the lira dropped to a four-month low against the dollar on concern about the impact of the euro-zone debt crisis. Basci is also seeking to curb loan growth, which combined with the lira’s decline has pushed inflation to a 3 1/2-year high.

The central bank’s “passionate devotion to the lower bound of the corridor” and its ability to tighten within that range makes an increase in the benchmark rate unlikely “for the foreseeable future,” Nilufer Sezgin, chief economist at Istanbul-based brokerage Ekspres Invest, said in an e-mailed report before the decision.

The central bank charged banks the maximum rate all last week, pushing average funding costs as high as 10.83 percent, the most since mid-January. It declined to 10.43 percent yesterday with the resumption of lending at the 5.75 percent one-week repo rate.

Inflation climbed to 11.1 percent in April, the highest since October 2008. Basci said it will drop to 8 percent in May and the central bank forecasts a year-end rate of 6.5 percent.

The lira’s 18 percent drop against the dollar last year helped push prices higher. The currency has rebounded this year, gaining more than 3 percent. It was little changed at 1.8363 per dollar at 1 p.m. in Istanbul. Two-year benchmark bond yields declined 3 basis points to 9.42 percent.

Annual growth in consumer lending has slowed to 16 percent from 30 percent at the start of this year.

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