Bloomberg News

Turkish Central Bank Leaves Benchmark Interest Rate Unchanged

October 20, 2011

Oct. 20 (Bloomberg) -- Turkey’s central bank left its benchmark interest rate at a historic low to maintain growth amid the debt crisis in Europe, even as the lira declines.

The central bank in Ankara kept its one-week repo lending rate at 5.75 percent, according to an e-mailed statement today. That matched the forecast of all 14 economists surveyed by Bloomberg. The bank will release minutes of the meeting within five working days.

The bank reduced the rate by half a percentage point on Aug. 4, saying action was needed because of a likely slowdown caused by debt problems in Europe, Turkey’s biggest export market. A European Union summit on Oct. 23 may not provide “the end point” to the sovereign debt crisis, German Chancellor Angela Merkel said yesterday.

The central bank “really needs to get a clear read-out from Europe,” Sengul Dagdeviren, chief economist at ING Bank AS in Istanbul, said in a telephone interview before the decision was announced. “Bank policy is indexed to developments in Europe.”

The bank has used up about 10 percent of its foreign currency reserves since July selling dollars to stem the lira’s decline. It intervened directly in markets on Oct. 18 for the first time since 2006, hours after selling $750 million in an auction. Reserves were $85.1 billion on Oct. 7, according to central bank data. That’s about the same as the country’s short- term external debt, according to June figures from the Treasury.

Global Bias

Turkey’s August rate cut was followed by countries including Brazil and Israel, which both cited expectations of a slowing world economy.

“Global monetary policy is so biased towards easing - and not only in advanced economies,” Inan Demir, chief economist at Finansbank AS in Istanbul, wrote in an e-mailed report.

The lira has slid more than 16 percent against the dollar this year, the second-worst performance among 25 emerging-market currencies tracked by Bloomberg, after South Africa’s rand. It fell to a record low of 1.9096 per dollar on Oct. 4. Turkey’s current-account deficit, equal to about 10 percent of gross domestic product, and concern over the spreading European debt crisis have dented investor confidence.

The currency’s decline has made imported goods more expensive, and higher natural-gas tariffs and taxes on cars, phones, alcohol and tobacco announced this month will push prices further up. Inflation was 6.2 percent in September and is likely to “significantly” exceed this year’s 5.5 percent target, the bank said on Oct. 4. It said the increase will prove temporary and the 5 percent goal for 2012 can be reached.

Yields on benchmark two-year lira bonds have risen to more than 8.8 percent, from about 8 percent at the start of September, on expectations of higher inflation and a possible rate increase.

Turkey’s economy is slowing after expanding an annual 8.8 percent in the second quarter. The government expects growth of 7.5 percent this year and 4 percent in 2012. The International Monetary Fund’s forecast for 2012 is 2.5 percent.

--Editors: Ben Holland, Karl Maier.

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

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


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