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Turkey ETF Climbs as Central Bank Holds Off Rate Cuts

This article was originally published on ETFTrends.com.

The largest Turkey ETF led the charge Wednesday after Turkey's central bank left its benchmark interest rates unchanged, easing concerns that it would loosen its monetary policy in face of declining inflationary pressures and a stronger lira currency.

The iShares MSCI Turkey ETF (TUR) was among the best performing non-leveraged ETFs on Wednesday, jumping 5.1% and breaking back above its short-term resistance at the 50-day simple moving average.

Turkey's central bank

Some market observers speculated Turkey's central bank would cut rates given the lower inflation levels as investors also saw the potential for political pressure for lower rates before the March local elections, Reuters reports.

“While developments in import prices and domestic demand conditions have led to some improvement in the inflation outlook, risks on price stability continue to prevail,” the bank said in a statement, adding it decided to maintain the tight policy stance until the inflation outlook displayed a significant improvement.

The lira currency appreciated 1.9% against the U.S. dollar to TRY5.3457 Wednesday on the decision to keep rates steady.

“Leaving the rates unchanged was what the markets wanted to see but the rhetoric is also still about maintaining a hawkish stance,” Kaan Nazli, a senior economist at Neuberger Berman, told Reuters. “They have not gone softer, given that inflation has been on a downward trajectory and this is what markets wanted to see on both forward guidance and the rate decision. Now we are looking at March, and what will happen then.”

President Tayyip Erdogan, a self-described “enemy of interest rates”, has been promoting lower interest rates to keep credit flowing and bolster the economy. His comments, though, have raised concerns over the central bank's independence, which caused a steep sell-off in the lira currency last year that further fueled inflationary pressures.

“We still think they’ll probably push ahead with a rate cut at the next the meeting in March. The conditions macroeconomically seem to be in place and as long as there are no major moves in the lira, they will go ahead and ease policy,” Jason Tuvey of Capital Economics told Reuters.

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