Turkish Central Bank Stays Flexible, Pledges More Predictability in 2012
Turkey’s central bank will try to make its actions more predictable next year while sticking to a monetary policy that gives it “wide freedom of action,” Governor Erdem Basci said.
The bank will drop the monthly briefings for economists it introduced this year and instead try to accept more requests from analysts for individual meetings with senior officials in Ankara, Basci said in an annual strategy announcement today. The monthly briefings became public events, when they were only designed to be informative for market participants, he said.
The governor surprised markets this year with a rate cut in August, followed by the introduction of an “interest rate corridor” in October within which policy makers can set interest rates on a daily basis. They immediately used the corridor to tighten policy. Inflation may end this year at more than 10 percent, compared to a target of 5.5 percent, he said.
Next year “will be a year in which policy flexibility remains and policy predictability increases rapidly,” Basci said. The October tightening has been “very effective” and high inflation “will be temporary and is the price paid for a soft landing” in an economy that expanded 8.2 percent annually in the third quarter of the year.
The lira fell 18.4 percent in the year to Dec. 27, a decline that Basci said added about 4 percentage points to inflation by driving up import costs. Tax increases and higher commodity prices are also pushing up prices, he said. The inflation rate will decline from May next year and will approach the 5 percent goal for the end of 2012, he said.
Dollar Sales Targets
The central bank will help markets and banks plan ahead by offering lending in liras and foreign currency over one month, in addition to one-week auctions, it said today. The monthly monetary policy meetings will also set a target for the amount of dollars the bank sells in daily auctions.
Until the meeting on Jan. 24 the target is $50 million a day, and the bank can sell more in “exceptional circumstances,” Basci said. The bank’s policy tools give it the freedom of action needed to manage volatile capital flows caused by Europe’s sovereign debt crisis, he said.
“The bank says it’s going to press ahead with the flexible policy with more flexibility, this means markets will carry on trying to see the way ahead,” Tufan Comert, a strategist at Garanti Securities in Istanbul, said by telephone.
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