Turkish central bank keeps rates steady, alters guidance
Bank gives first guidance that cuts will eventually come
First rate cut expected from around November
Turkey made U-turn last year after previous low-rates policy
Bank last hiked rate to 50% in March from 8.5% in May 2023
Adds analyst comment, stocks, background
By Ezgi Erkoyun and Huseyin Hayatsever
ISTANBUL, Sept 19 (Reuters) -Turkey's central bank held its main interest rate steady at 50% for a sixth straight month on Thursday as expected, saying it remained highly attentive to inflation risks but removing a reference to potential tightening.
The wording change provided the first guidance signalling that rate cuts will eventually come, as the bank said "monetary policy tools will be used effectively in case a significant and persistent deterioration in inflation is foreseen."
In previous statements the bank had said its monetary policy stance would be "tightened" if such a deterioration in inflation is foreseen.
The lira TRYTOM=D3 was little changed at 34.03 against the dollar after the monetary policy committee statement. The main Istanbul stock index .XU100 rose 2%.
The last time the bank raised its policy rate TRINT=ECI was in March, when it hiked by 500 basis points to round off an aggressive tightening cycle that started in June last year.
Since then it had kept the one-week repo rate on hold while pledging to tighten further if the outlook worsens. A Reuters poll showed analysts expect the bank to make its first rate cut around November.
The poll showed it could move as soon as October or as late as next year and it is seen lowering the rate by more than 20 percentage points by the end of 2025.
"CAUTIOUS CUTTING CYCLE"
Andrew Birch, economics associate director at S&P Global Market Intelligence, said "success in its disinflation plan to date lessens the pressure for the bank to begin rate cuts ahead of its own timetable."
He said their baseline assumption remained that the bank will begin a "cautious cutting cycle" in December 2024.
Annual inflation dropped below 52% in August from a peak of 75% in May. The government forecasts it will fall below 42% by year end.
The central bank has lifted its policy rate by 4,150 basis points since June 2023, reversing years of monetary stimulus backed by President Tayyip Erdogan to boost economic growth.
The policy U-turn has sharply reined in credit and economic growth, and is designed to put an end to years of a cost-of-living crisis and a series of currency crashes.
In an interview with Reuters earlier this month, Deputy Governor Hatice Karahan said Turkey's fiscal policy will be critical to ensure that inflation remains on its downward path.
Overnight interest rates have fallen to some 47.4% from 53% in the last 10 days due to excess liquidity after a sharp rise in central bank forex reserves, while some banks have cut long-term loan and deposit rates due to expected inflation declines.
Reporting by Ezgi Erkoyun, Huseyin Hayatsever and Tuvan Gumrukcu and Canan Sevgili;
Writing by Daren Butler;
Editing by Sharon Singleton
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