As widely expected, the Central Bank of Turkey kept its main rate (one-week repo) steady at 7.50%, resisting political pressure, especially from President Recep Tayyip Erdogan, to cut rates interest rates to boost economic growth ahead of the June general elections.

Erdogan’s public attacks on the Central Bank and its governor Erdem Basci have sent TRY to all-time lows against the dollar, also raising concerns over the independence of the Bank. Erdogan has not criticised the Bank, at least publicly, since his March 11 meeting with Basci and Deputy PM Ali Babacan, who has voiced support for the Bank and Basci, to discuss TRY weakness and other economic issues. The meeting helped smooth over differences and a consensus was reached, said Erdogan. The President’s office issued a statement after the meeting saying that Erdogan’s sensitivities about interest rates and production were emphasized, but the environment of confidence and stability should be preserved.

Shortly before the Central Bank’s Monetary Policy Committee (MPC) meeting on March 17, TRY was trading at 2.62 per dollar but firmed to 2.61 following the rate decision.

The Central Bank also left its overnight lending rate and borrowing rate at 10.75% and 7.25%, respectively.

The on-going cautious monetary policy along with prudent fiscal and macroprudential policies are having a favourable impact on inflation, especially inflation excluding energy and food (core inflation indicators), said the Central Bank in a statement after the MPC meeting, however, stressing that uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy.

The Bank reiterated that future monetary policy decisions will be conditional on the improvements in the inflation outlook and inflation expectations, pricing behaviour and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained until there is a significant improvement in the inflation outlook.

The favourable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance, according to the Bank. External demand remains weak, while domestic demand contributes to growth moderately, the Bank also said.