UPDATE 1-Turkish cenbank holds rates at 19% after inflation rise

(Adds bank statement, lira reaction)

ISTANBUL, May 6 (Reuters) – Turkey’s central bank held its key interest rate steady at 19% as expected on Thursday and repeated a pledge to keep it above inflation, which the bank expects to cool after having risen beyond 17% as the lira depreciated.

The lira has shed 13% since Sahap Kavcioglu was appointed bank governor in a sudden change of personnel in March. But it edged up 0.3% after the policy committee said it will maintain the current stance until a forecast fall in inflation is achieved.

The central bank also said that past rate hikes, including in March, have begun to cool demand in the economy. It also dropped a reference made in April’s policy statement to “maintain the tight monetary stance”.

In a Reuters poll, all 18 economists forecast the bank would keep its one-week policy rate unchanged, before easing likely in the third quarter.

Foreign investors have fled Turkish assets and dumped the lira since mid-March when President Tayyip Erdogan sacked the former central bank chief, respected policy hawk Naci Agbal, driving up trade-related inflation for import-dependent Turkey.

Last week, the central bank raised its year-end inflation expectations to 12.2% from 9.4%, still below market expectations. It expects inflation to dip from April, when it climbed to 17.14%, its highest level in nearly two years.

“The decelerating impact of the monetary tightening on credit and domestic demand has begun to be observed,” the central bank’s policy committee said.

“Taking into account the high levels of inflation and inflation expectations, the current monetary policy stance will be maintained until the significant fall in the April Inflation Report’s forecast path is achieved,” it added.

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