Bloomberg News

Goldman Says Turkey Has Highest Rates in Region After Switch

December 01, 2011

(Updates with closing bond yields in last graph.)

Dec. 1 (Bloomberg) -- Turkey has the highest rates in emerging Europe, the Middle East and Africa, Goldman Sachs Group Inc. said, after it started following the country’s overnight money market rates instead of the central bank’s benchmark.

Goldman showed Turkish rates as the highest regionally after switching from forecasting the one-week repo lending rate, which the central bank labels as its benchmark rate, according to the e-mailed report today. Goldman expects the overnight rate, which it says is now the policy rate for Turkey, to decline to 9.5 percent by the end of next year compared to the current 11.27 percent, it said.

“We expect overnight Istanbul Stock Exchange interest rates to hover around 13 percent over the next six months,” Goldman economist for the region Ahmet Akarli said in the report from London. “However, if we are right about Europe, the central bank would likely ease policy once again in the second half of 2012, as balance of payments pressures subside and the lira finds better fundamental support. Between six to 12 months therefore we expect the bank to ease overnight ISE rates to around 9.5 percent.”

Turkey’s central bank introduced a more flexible interest rate policy on Oct. 26, lending to banks at rates between the 5.75 percent one-week repo rate and overnight rates of as much as 12.5 percent. Governor Erdem Basci labeled the move as a rate increase, though he said the 5.75 percent rate was still his benchmark.

Turkey now has the highest interest rates in the region followed by Hungary on 6.5 percent and South Africa on 5.5 percent, Goldman said in the report.

The central bank may widen its so-called interest rate corridor to between 5 percent and 14 percent from between 5 percent and 12.5 percent to “reinforce tight monetary conditions,” Goldman said.

Yields on Turkey’s two-year lira bonds fell 7 basis points to 10.32 percent at 5 p.m. in Istanbul. The yield was 9.62 percent before the central bank switched to its more flexible policy in October.

--Editor: Aydan Eksin

To contact the reporter on this story: Mark Bentley in Istanbul at mbentley3@bloomberg.net

To contact the editor responsible for this story: Riad Hamade at rhamade@bloomberg.net


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