Turkey’s central bank has kept its main interest rate unchanged this month, in a surprise decision that has sent the lira sliding despite a rise to the country’s lending rate.

Turkish policymakers voted keep the country’s benchmark repo at 8 per cent, but implemented a 75 basis point hike to the overnight lending rate – one of three main rates it controlled.

Analysts had expected an average 50 basis point rise to the benchmark rate after a November decision to tighten policy for the first time in more than two years in a bid to halt a stinging currency decline.

The lira, which was up a little ahead of the decision, fell into reverse after the announcement. At pixel time the currency is down 1.25 per cent against the greenback to TRY3.8020.

In a statement explaining the move, policymakers said the decision to hike the lending rate was a form of “monetary tightening in order to contain the deterioration in the inflation outlook”.

They added “further monetary tightening will be delivered” should inflation overshoot on the back of the record collapse in the currency.

“It should be emphasised that any new data or information may lead the Committee to revise its stance”, said a statement.

Here’s where we currently stand on the three main policy rates:

  • Benchmark repo rate: 8 per cent
  • Overnight lending rate: 9.25 per cent
  • Overnight borrowing rate: 7.25 per cent

Ahead of the decision, analysts polled by Bloomberg were split on how the central bank would act this month as the lira has started the year as the world’s worst performing currency, coupled with a slowing economy and political pressure to keep rates low.

Of the 22 analysts surveyed, four predicted no change, three forecast a 25bp hike, eight expected a 50bp hike, two predicted a 75bp hike and five thought the central bank would raise by a whopping 100bps.

“This was the bare minimum and very disappointing”, said Marc Chandler, global head of currency strategy at BBH.

Tim Ash at Bluebay Asset Management said: “The nagging concern from I think most economists and market participants is that the CBRT is not really willing to do whatever it takes to stabilise the lira or indeed rein in inflation”.

First chart via Bloomberg

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