Turkish lira tumbles after central bank unexpectedly holds rates

Thomson Reuters

Turkish President Erdogan greets his supporters during a ceremony in Istanbul

The Turkish lira tumbled on Tuesday after the country's central bank unexpectedly held its key interest rate.

The Central Bank of the Republic of Turkey left its benchmark interest rate unchanged at 17.75%, shocking economists who were anticipating a 100 basis point hike.

"Recently released data indicate a more significant rebalancing trend in the economic activity," the bank's statement said. "External demand maintains its strength, while signs of deceleration in domestic demand become more visible."

In a note sent out to clients pon Friday, a team of Nomura analysts led by Craig Chan wrote that while they expected a 100-basis-point hike, "A no-change or a 'marginal' hike of 25-50bp would be Lira negative, and could prompt front-end rates to price in a higher probability of emergency tightening at some point in the not too distant future."

Tuesday's decision comes just one-month after Recep Tayyip Erdogan won reelection. He is a self-proclaimed "enemy" of interest rates, and said in May that if he won reelection he would take more responsibility for Turkey's economy.

The Turkish lira has plunged 29.5% this year versus the US dollar.

This story is developing.

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