Nov. 3 (Bloomberg) -- Turkey’s inflation rate fell to a 39- year-low in October, supporting central bank forecasts that there’s room to extend its yearlong series of cuts to the benchmark interest rate.

Inflation eased to 5.1 percent, the slowest pace since July 1970, from 5.3 percent the month before, the statistics office in Ankara said on its Web site today. Prices were expected to rise 4.6 percent, according to the median estimate of eight economists surveyed by Bloomberg. In the month, prices rose 2.4 percent, compared with 2.6 percent a year earlier.

Central bank Governor Durmus Yilmaz already has slashed 10 percentage points from the benchmark interest rate in 12 months and said on Oct. 27 that there’s room for “limited” additional cuts. The bank said it’s keeping an easing bias because there’s no clear sign of recovery and inflation is likely to remain slow.

“In the short term it’s unlikely that we’ll see inflation go much below this level because the base effect will start to evaporate,” said Yarkin Cebeci, an economist for JPMorgan Chase & Co. in Istanbul. “I think we’ll have another quarter point rate cut and that’s most likely to be the final one.”

The lira fell against the dollar, trading at 1.5088 per dollar at 5:16 p.m. compared with 1.5078 before the announcement. The bond market was closed.

Market Expectations

Yilmaz said on Oct. 20 that inflation in the month was likely to be higher than the market was expecting. The governor is aiming for an inflation rate of 7.5 percent in 2009, 6.5 percent in 2010 and 5.5 percent in 2011. The bank next meets to decide rates on Nov. 19.

Core inflation, which excludes food and energy prices, accelerated to an annual 4.1 percent in October from 3.4 percent a month earlier.

Gross domestic product this year may contract 6.5 percent, according to International Monetary Fund estimates. That would be the deepest decline since 1945.

The cost of goods leaving Turkish factories and mines rose an annual 0.2 percent in October, the statistics agency said today. Producer prices rose 0.3 percent in the month.

To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.

Last Updated: November 3, 2009 10:38 EST