ISTANBUL, Jan 25 (Reuters) - Turkey's central bank completed its aggressive tightening cycle with a 250 basis point, opens new tab interest rate hike to 45% on Thursday, as expected, and said it would maintain current levels "as long as needed" to bring about the desired disinflation.
The bank has lifted its one-week repo rate (TRINT=ECI), opens new tab by 3,650 basis points since June, when President Tayyip Erdogan appointed former U.S. banker Hafize Gaye Erkan as its governor to conduct a sharp pivot toward more orthodox policies.
The central bank said it had "achieved" the policy setting needed to establish disinflation and will reassess its stance only if "notable and persistent risks" to the inflation outlook emerge.
"The current level of the policy rate will be maintained until there is a significant decline in the underlying trend of monthly inflation and until inflation expectations converge to the projected forecast range," it said.
The central bank expects inflation to rise from near 65% last month to 70-75% in May, before dipping to about 36% by the end of this year as tighter monetary policy cools prices.
The bank is signalling that "the bar for easing policy is higher than we'd previously thought," said Capital Economics senior emerging markets economist Liam Peach.
"Inflation and inflation expectations will need to have fallen a long way before the central bank starts to cut interest rates," he added, predicting no cuts until next year.
WHEN WILL IT EASE?
Earlier this week, the head of Turkey's Banks Association, Alpaslan Cakar, said he expected an easing cycle to being in the last quarter of this year after a final hike this week.
Media attention has focused on Governor Erkan in the last week after a news story emerged, which she dismissed as "unfounded" and "unacceptable", targeting her, her family and the bank. Erdogan apparently endorsed her on Wednesday, slamming efforts to spread "rumours" and undermine economic progress.
The lira , which has hit a series of record lows in recent weeks, weakened slightly after Thursday's MPC statement to 30.2865 against the dollar.
The currency has suffered a sustained slide since 2018, weakening sharply last summer as authorities loosened their grip on it. Depreciation slowed in the autumn but has not halted.
The bank said domestic demand, stickiness in services inflation, and geopolitical risks were keeping inflation pressures alive but the decline in the underlying trend of monthly inflation has continued.
In December, the bank downshifted tightening to 250 basis points from the previous 500 basis point hikes, and said at the time it would complete the tightening cycle as soon as possible.
All 25 respondents in a Reuters poll had expected the central bank to hike rates to 45%.
Editing by Jonathan Spicer and Christina Fincher
