The Turkish central bank left interest rates unchanged on Thursday. New bank governor Şahap Kavcıoğlu did not give in to pressure from Turkish President Recep Tayyip Erdoğan, who would like to see interest rates cut.
Kavcıoğlu was installed after President Erdoğan abruptly fired his predecessor Naci Ağbal. That happened after Ağbal implemented a larger-than-expected interest rate hike to curb inflation. Kavcıoğlu previously said he would not rush to ease his predecessor’s policies. However, he is under pressure to cut interest rates, as Erdoğan would like to see.
Last week, Erdoğan said the government was committed to both cutting inflation and cutting interest rates below 10 percent. That caused a sharp drop in the lira. The currency has weakened more than 10 percent against the dollar since Kavcıoğlu’s unexpected appointment.
Turkey’s main interest rate remains at 19 percent for the time being, which was in line with expectations on the financial markets.
Turkey hiked the interest rate by 200 basis points on March 18. This made Turkey’s inflation-adjusted base rate one of the highest in the world. Kavcıoğlu, a banking professor, was critical of that measure, which he said could harm economic growth.
Inflation in March rose to 16.2 percent on an annual basis from 15.6 percent in the previous month. It was a result of a global oil rally and a weaker currency. Rising inflation, however, leaves little room for the new head of the central bank to lower interest rates.