Turkey’s central bank may lower its maximum 11.5 percent lending rate and become more open to lira weakness over the rest of 2012, UniCredit SpA (UCG) said.
The outlook for inflation is becoming more favorable, helping the central bank, Gillian Edgeworth, chief economist for eastern Europe and the Middle East at UniCredit AG in London, said in an e-mailed report to clients today.
“It seems to make sense at this stage that the bank gradually lowers the overnight lending rate from the 11.5 percent,” Edgeworth said.
The central bank lends to banks at rates between 5.75 percent and 11.5 percent under its variable monetary policy framework. Inflation has slowed from a three-year high of 11.1 percent in April to 8.9 percent in June and Basci said last week he may revise down his inflation forecast of 6.5 percent for the end of the year.
The lira fell less than 0.1 percent to 1.8218 per dollar at 11:43 a.m. in Istanbul. It’s averaged 1.8028 since the end of February, reaching a low of 1.8673 for the period on May 31. Yields on two-year benchmark bonds were unchanged at 8.02 percent and have declined 299 basis points this year, the most among major emerging markets.
Central bank governor Erdem Basci may elect to bolster his foreign currency reserves should the lira strengthen, the report said.
“The lira trades at the strong end of the range established since February,” Edgeworth said. “Should this strong end of the band be tested in a meaningful manner over the coming weeks and months, we would see a policy of renewed gradual foreign exchange reserve accumulation as sensible.”
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