The bank said, in a statement by the monetary policy committee, that the inflation outlook was the key factor in the decision.
"Processed food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators," said the statement. "Considering this delay and taking into account the uncertainty in domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy as long as deemed necessary."
However, the bank`s monetary policy committee has discussed a roadmap for movement towards policy normalization. A strategy document detailing the roadmap has been published with the interest rate announcement.
The bank`s decision had been forecast by the largest number of analysts before the decision. Analysts said lira volatility, politics and the imminent Federal Reserve rate hike were the main drivers of the decision.
"The lira has sold off recently against the backdrop of general jitters in global financial markets as well as concerns about political uncertainty in Turkey," commented William Jackson, emerging markets economist with Capital Economics.
"Political uncertainty also must have been an important, as any decision made now could be affected by actions from the caretaker government that will be in place shortly," said Attila Yesilada, an economist with Global Source Partners in Istanbul. "And the upcoming Fed rate hike could greatly change external conditions. All of this means that a change in policy at this time would be premature."
More about:
