Turkey's central bank keeps interest rate at 8.5%, citing inflation

Turkey’s Central Bank decided on Thursday to leave interest rates unchanged. The decision comes ahead of Turkey’s elections next month and follows Turkish President Recep Tayyip Erdogan’s fiscal pledge.

The bank’s Monetary Policy Committee said it will keep its policy rate at 8.5%, citing continued inflation and the lasting effects of February’s devastating earthquake.

“The Committee assessed that the current monetary policy stance is adequate to support the necessary recovery in the aftermath of the earthquake by maintaining price stability and financial stability,” read a statement.

Why it matters: Inflation in Turkey has been on the rise for more than a year, though it may be easing somewhat. The most recent data indicates that annual inflation was 50.51% in March, down from 55.2% in February.

Higher interest rates tend to tame inflation, while lower interest rates can spur economic growth. Erdogan has long held the unorthodox position that lower interest rates lead to lower inflation.

Under Erdogan’s influence, the Turkish Central Bank began cutting interest rates from 14% last October, despite the rampant inflation at the time. In February, the Central Bank cut rates again from 9% to the current rate of 8.5%. In March, the bank also left rates as they were.

The Central Bank’s interest rate is an issue in Turkey’s upcoming elections on May 14. Erdogan said last week that as long as he is in power, both interest rates and inflation will continue to fall.

Know more: Bloomberg reported on Thursday that Turkey’s Central Bank has been selling off gold reserves to meet surging local demand. People often buy gold during rising inflation as a hedge.

What's next: The Monetary Policy Committee will next deliberate on May 25.