Turkey Central Bank maintains interest rate of 14%
Despite the stark devaluation in the Turkish currency, Ankara decided to maintain its interest rate of 14%.
The Turkish Monetary Policy Committee (MPC) made the decision on Thursday to keep its policy rate unchanged at 14% in a bid to bring about stable prices and financial stability, the Turkish Central bank said in a statement.
Following several reductions in the country's interest rate throughout the past year, the Turkish lira went into free fall, gravely affecting the country's financial system. The national currency lost over 50% of its value to the dollar, reaching a low of 18.4 lire per dollar in December of last year in parallel to its rate of 7.4 lire 11 months earlier.
The Turkish Central Bank tried to mitigate the issue by reducing the policy rate by 100 basis points from 15% to 14%.
More than 5000 people had protested in mid-December in Istanbul against the lira's devaluation and the decrease in the purchasing power, calling for the government's resignation.
"The Monetary Policy Committee (MPC) has decided to keep the policy rate (one-week repo auction rate) constant at 14 percent," the statement read.
According to Turkey's chief bank, domestic economic activity remained strong due to the robust external demand for Turkish goods. The share of sustainable components of economic growth increased, too, the bank revealed, which is an integral element of stabilizing prices.
"The committee also assesses that the credit growth including the long-term investment loans and targeted usage of accessed funds for real economic activity is important for financial stability," the bank said.
Preserving the policy rate is a reflection of the committee continuing to adhere to measures aimed at deflating the economy to try and bring about sustainability to prices and financial stability, as well as declining inflation, the bank added.
The bank will continue "to use all available instruments decisively within the framework of the so-called liraization strategy" until the constant disinflation process with a target of 5% is achieved.