Turkey PM Adviser Says Rates Should Be Held; Lira Drops

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Turkey’s central bank shouldn’t raise interest rates at its monetary policy meeting later on Tuesday, said Emine Nur Gunay, chief adviser to Prime Minister Ahmet Davutoglu. The currency weakened after her comments.

The lira’s volatility is due to political uncertainty as Turkey appears to be headed for an early election after coalition talks broke down, Gunay said in an interview with BloombergHT TV. Currency weakness is common among emerging economies, she said, citing Brazil as an example.

The lira, already at a record low, fell as much as 0.3 percent after Gunay’s remarks before trimming losses to trade at 2.8712 per dollar at 12:16 p.m. in Istanbul.

The central bank announces its monthly interest rates decision at 2 p.m. in Ankara. Governor Erdem Basci said July 30 that he also might announce a shift from his unorthodox interest rates corridor to a single-rate policy as early as today. Gunay said the timing may not be right for such a move.

“The central bank shouldn’t consider a change in method at this point,” Gunay said, referring to the monetary policy framework. “No interest rate increase should be expected from the central bank now.”

The government accused the central bank earlier this year of keeping borrowing costs too high and hurting economic growth, which slowed to 2.3 percent in the first quarter from 2.9 percent for 2014 as a whole.

“It’s not in Turkey’s interests to pontificate about higher interest rates,” the state-run Anadolu news agency cited Economy Minister Nihat Zeybekci as telling reporters in Ankara on Tuesday. The lira’s depreciation is nothing but “speculation,” he said.

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