In a widely expected move, the central bank of Turkey, which is battling double-digit inflation and a fluctuating Turkish lira, on January 18 kept its one-week repo (8%), overnight lending (9.25%) and borrowing (7.25%) rates on hold. The national lender’s monetary policy committee (MPC) also opted to keep its late liquidity window lending rate unchanged at 12.75%.

The Turkish lira gained 0.73% d/d against the USD to trade at 3.7858 as of 16:30 local time on January 18 while the benchmark BIST-100 was up 0.83% to 117,562.

Responding to the decision to hold the main rates, Capital Economics said in a note to investors: "The Turkish MPC’s decision to keep all of its key interest rates unchanged today was accompanied by a statement that indicates the Committee is more determined to bring inflation back under control. This supports our view that rates will be kept at current high levels this year, even as inflation eases."

Piotr Matys, a strategist at Rabobank in London, told Bloomberg he felt the central bank was now putting out “a slightly more hawkish message”, adding that “[this message] may provide the lira with support, although I don’t think it will last if a corrective rebound in the dollar materialises in the coming weeks as the sell-off in the dollar does look overdone”.

“The tight stance in monetary policy will be maintained decisively until the inflation outlook displays a significant improvement, independent of base effects and temporary factors, and becomes consistent with the targets,” the central bank said in a statement released after its MPC meeting.

“Inflation expectations, pricing behaviour and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered,” it added.

Current elevated levels of inflation and inflation expectations continue to pose risks in pricing behaviour, the national lender warned.

Annual consumer price inflation came in at 11.92% in December, easing from the 14-year high of 12.98% in November.

A recent central bank survey showed that expectations for Turkey's end-2018 inflation stand at 9.5% in January, well above the official target of 5%.

As far as economic growth is concerned, the central bank said “recently released data indicate that economic activity maintains its strength”.

Domestic demand continues to expand and external demand is contributing positively to exports, according to the central bank.