Bloomberg News

Turkish Inflation May Accelerate in Challenge to Bank Policy

November 02, 2011

Nov. 2 (Bloomberg) -- Turkish inflation probably accelerated in October, in a further challenge to the central bank’s decision to keep benchmark rates steady, after the lira weakened to a record low and bond yields rose to the highest level since August 2009.

The consumer price inflation rate may rise to 7 percent from 6.2 percent in September, according to the median estimate of eight economists in a Bloomberg survey. Forecasts ranged from 6.7 percent to 7.6 percent. The statistics agency in Ankara will release the data at 10 a.m. local time tomorrow.

Central bank Governor Erdem Basci said on Oct. 26 he reserved the right to switch between the benchmark lending rate of 5.75 percent and rates of as much as 12.5 percent on a daily basis, to help tame inflation and the lira’s depreciation. The lira fell almost 20 percent against the dollar in the year to the end of October, driving up import prices. It fell to a record low of 1.9096 on Oct. 4.

“The central bank has widely flagged a steep acceleration in October CPI inflation, owing to the increase in administered prices and the Turkish lira pass-through,” Thomas Costerg, an economist in London for Standard Bank Plc, said in answer to e- mailed questions. “Of interest will be the core CPI reading, which better reflects underlying inflation pressures: We think it could have accelerated to around 7.4 percent annually from 6.96 percent in September.”

The central bank says inflation will probably end this year at 8.3 percent, above its goal for the year of 5.5 percent. A target of 5 percent for 2012 remains in reach, according to the forecasts the bank issued Oct. 26.

Yields on benchmark two-year lira debt have risen 33 basis points, or 0.33 percentage points, since the central bank’s inflation forecasts were released. Yields fell 14 basis points to 9.95 percent at 10:36 a.m. in Istanbul after closing at the highest level since August 2009 yesterday. The lira rose 0.4 percent to 1.7853 per dollar.

The lira’s decline has boosted costs of imports at the same time that natural-gas prices have risen and the government raised taxes on cars, phones, alcohol and tobacco. The government retracted some of the increases for tobacco on Oct. 26 at the request of the central bank, Basci said.

--Editors: Heather Langan, Mark Bentley

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

To contact the editor responsible for this story: Louis Meixler at lmeixler@bloomberg.net


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