Bloomberg News

Turkey Bank Expects ‘Significant’ Breach of Inflation Target

October 04, 2011

(Updates with energy prices in second paragraph.)

Oct. 4 (Bloomberg) -- Turkey’s central bank said inflation will accelerate in the remainder of the year and “significantly” exceed the target of 5.5 percent for the end of 2011.

Increases to household electricity and gas prices this month will add 0.5 percentage point to inflation, which is also being driven by a fall in the value of the lira that pushes up the cost of imported goods, the bank in Ankara said today in an e-mailed comment. The inflation rate will start to decline again in 2012, it said.

Central bank Governor Erdem Basci said Sept. 30 that there’s a “high chance” the bank will meet its 5 percent goal for inflation next year because economic growth is slowing. The bank on Aug. 4 cut its benchmark one-week repo lending rate to a historic low of 5.75 percent, and says more reductions may be needed to cushion the economy against a slowdown in Europe, Turkey’s biggest export market.

Inflation slowed to 6.2 percent last month from 6.7 percent in August, the country’s statistics office said yesterday. Core inflation, excluding energy, food, tobacco and gold, accelerated to 7 percent, the highest for 2 1/2 years.

The lira has declined 23 percent against the dollar in the last 12 months, and fell to a record low of 1.8926 per dollar today. Basci said on Sept. 30 that the lira’s losses were “useful and sufficient,” and said the bank will not welcome any further declines.

--Editors: Ben Holland, Louis Meixler.

To contact the reporter on this story: Ali Berat Meric in Ankara at americ@bloomberg.net; Steve Bryant at sbryant5@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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