By CentralBankNews.info
      Turkey’s central bank surprised financial markets by keeping its policy rate steady at 17.75 percent despite soaring inflation and a plunging lira, but repeated its recent guidance that it would maintain a a tight policy stance until the outlook for inflation improves and even raise rates further if necessary.
      The Central Bank of the Republic of Turkey (CBRT), which was widely expected to raise its benchmark one-week repo rate by another percentage point following a larger-than-expected jump in June inflation to 15.4 percent, indicated it expects inflation to decelerate by saying inflation expectations and prices were lagging recent policy tightening and domestic demand is falling.
      The central bank’s policy decision was highly anticipated by investors who have become deeply concerned over the CBRT’s independence and ability to control inflation after President Tayyip Erdogan’s son-in-law was appointed treasury and finance minister, and Erdogan issued a decree that gives him control over who is appointed as CBRT governor and deputy governors.
      The verdict by financial markets over the central bank’s policy decision, seen as a litmus test of the CBRT’s independence, was swift.
      The lira, which has already fallen 20 percent this year, fell by another 2.6 percent to 4.76 per U.S. dollar while Turkish stocks fell by 1.65 percent.
      Prior to the snap election in late June that handed Erdogan extended powers, the CBRT had tightened its policy sharply in response to rising inflation.
      In May the central bank then simplified its operational framework by setting the one-week repo rate as its key policy rate and raised it twice by a total of 975 basis points.

      The Central Bank of the Republic of Turkey issued the following statement: