Turkey holds policy rate at 8.5% to support growth after quakes

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Turkey’s central bank held its policy rate at 8.5 percent as expected on Thursday, saying it had become even more important to keep financial conditions supportive to preserve growth momentum after last month’s devastating earthquakes.

In February the bank had cut its policy rate by 50 basis points to provide a stimulus in the wake of the earthquakes which killed more than 50,000 people in Turkey and left widespread destruction across ten provinces.

After its monthly policy meeting, the bank said it was closely monitoring supply-demand imbalances resulting from the quakes.

“It has become even more important to keep financial conditions supportive to preserve the growth momentum in industrial production and the positive trend in employment after the earthquake,” the statement said.

The lira weakened slightly to 19.0480 against the dollar after the announcement.

Last year the bank cut its key rate by 500 basis points in an unorthodox easing cycle designed to counter an economic slowdown, before keeping it steady at nine percent in December and January. The stimulus came even as inflation soared above 85 percent last year and dipped only to 55 percent in February.

Even before the quakes analysts said there could be more easing ahead of the May 14 presidential and parliamentary elections, in which President Tayyip Erdogan faces the biggest political challenge of his two-decade rule.

A self-described “enemy” of interest rates, Erdogan has urged monetary stimulus over the last several years to boost growth and exports, though it set off a series of lira crises and stoked prices.

In a Reuters poll, six respondents expected a 50-point cut this month, compared to 12 that expected no change.

The economic cost of the earthquakes is estimated to be around $104 billion and is expected to shave one to two percentage points off economic growth this year.