Turkey’s Central Bank Raises 2011 Inflation Forecast to 6.9%, Yields Surge
Turkey’s central bank raised its inflation forecast for 2011 to 6.9 percent from 5.9 percent, more than analysts expected, citing higher oil prices and taxes on textiles. Bond yields rose the most in a month.
The bank’s forecast assumes “limited tightening” of monetary policy in the second half and loan growth of 20 to 25 percent, governor Erdem Basci said at a news conference in Ankara to introduce a quarterly inflation report. The estimate compares with the bank’s official target of 5.5 percent.
Turkey should raise interest rates in a “move toward normalization” because today’s forecast is “really high” compared with targets, Murat Toprak, head of HSBC Holdings’ Plc’s foreign exchange strategy for Europe, the Middle East and Africa, said in e-mailed comments from London.
The central bank controversially cut the benchmark one-week repo rate by a total of 0.75 percentage points in December and January in a bid to deter capital inflows that strengthen the lira and hurt exports. It’s trying to offset the possible effect of the cuts on inflation by increasing banks’ reserve requirements to limit their ability to lend.
Turkish bonds reversed earlier gains, with yields rising as much as 23 basis points to 8.46 percent, the biggest increase since March 23. The ISE National 100 share index fell 0.6 percent to 67,393.63, after rising 0.6 percent earlier. The lira was little changed at 1.5160 per dollar.
‘Surprise Move’
“This 1 percentage point rise was a surprise move,” Turgut Keles, WestLB AG’s chief of local-market trading in Istanbul, said in e-mailed comments. “It will be hard for bond yields to move toward 8 percent from now on.”
The central bank also increased its forecast for inflation in 2012 to 5.2 percent from 5.1 percent, Basci said. Inflation was seen at 5 percent in 2013, he said. The estimate for the price of oil this year was raised to $115 per barrel from $95 per barrel.
Credit growth is expected to slow in the second quarter, while inflation will probably accelerate in the period, Basci said. The rate of inflation will decline in the third quarter before climbing in the fourth, he said.
“The continuing emphasis on credit expansion supports our view that the bank will remain committed to its unconventional policy framework,” said Inan Demir, chief economist at Finansbank AS in Istanbul. “Thus, we continue to expect the bank to tighten monetary conditions by implementing reserve requirement hikes.”
Turkish banking customers are starting to extend the term of their deposits to three months from one month after the central bank increased reserve requirements at a faster rate on shorter-term deposits, Basci said.
To contact the reporter on this story: Ali Berat Meric in Ankara at americ@bloomberg.net; Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net
To contact the editor responsible for this story: Riad Hamade at rhamade@bloomberg.net; Gavin Serkin at gserkin@bloomberg.net
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