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Turkish Inflation Rate Declines to Year-Low of 7.3%, Pushing Bonds Higher

Turkey’s inflation rate plunged to the lowest this year, vindicating central bank predictions of a slowdown and pushing bonds higher.

Inflation slowed to 7.3 percent in November from 8.6 percent the month before, the statistics office in Ankara said on its website today. It was expected at 8.2 percent, according to the median estimate of eight economists surveyed by Bloomberg. In the month, prices rose 0.03 percent.

Central bank Governor Durmus Yilmaz has kept the benchmark interest rate unchanged at an historic low of 7 percent for a year even as economic growth in the first half exceeded 10 percent. He forecast in October that inflation will slow in the coming months, making rate increases unnecessary before the last quarter of 2011.

Today’s inflation figure is a “superb number” that shows “the central bank got it spot on again,” said Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, in an e-mailed note. “Bonds are going to fly on the back of this.”

Yields on benchmark two-year lira bonds dropped 6 basis points to 7.65 percent at 10:35 a.m. local time. The lira gained 0.1 percent to 1.4828 per dollar.

Food prices fell 1.9 percent in November, the statistics agency said. The measure of core inflation, which excludes food and energy prices, was little changed from the previous month at 2.5 percent.

Close to Targets

The central bank predicts that inflation will end next year at 5.4 percent and slow to 5.1 percent in 2012, close to its targets. The bank next meets to set the benchmark one-week repo lending rate on Dec. 16.

Turkey’s gross domestic product grew an annual 10.3 percent in the second quarter of the year, following an 11.7 percent jump in the first three months. The government predicts 6.8 percent growth for the full year.

The cost of goods leaving Turkish factories and mines rose 8.2 percent in the 12 months through November, down from 9.9 percent the previous month, the statistics agency said today. Producer prices fell 0.3 percent in the month.

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

To contact the editor responsible for this story: Peter Hirschberg in Jerusalem at phirschberg@bloomberg.net

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