Bloomberg News

Turkey Central Bank Keeps Rate Corridor as Oil Prices Increase

August 16, 2012

Turkey’s central bank kept both ends of its interest-rate corridor unchanged, declining to loosen policy to stimulate growth while rising oil and commodity prices threaten inflation targets worldwide.

The bank in Ankara held its benchmark one-week repo rate at 5.75 percent, in line with the forecasts of all nine economists surveyed by Bloomberg. It also kept the top rate for overnight loans at 11.5 percent.

Central Bank Governor Erdem Basci varies interest rates within the corridor on a daily basis to balance above-target inflation, a slowing economy and a currency that depreciated more than any other major world currency last year. Predictions for a rate cut fell in August, with one-year interest rate swaps rising 44 basis points in the month, as the price of Brent crude surged to above $116 from $104.92 at the close on July 31.

The bank’s year-end inflation estimate is 6.2 percent, higher than its official target of 5 percent. Inflation accelerated to 9.1 percent in July, though that was down from a 3 1/2 year high of 11.1 percent in April, according to data from the state statistics institute in Ankara.

Yields on benchmark two-year lira debt have increased from 7.49 percent on Aug. 3, their lowest this year, as expectations that Basci would ease receded.

Basci had said on July 6 that inflation risks were easing as oil prices declined, and that the year-end inflation figure may be closer to the 5 percent target than previously expected. The price of Brent crude rose amid rising tensions over Syria and speculation of possible Israeli military action against Iran.

The threat of rising oil prices leading to higher inflation hinders Basci’s ability to use monetary policy to jump-start Turkey’s nearly $800 billion economy, which has shown signs of stalling. The economy contracted on a quarterly basis in the first quarter for the first time since 2009, and loan growth in July slumped to 17 percent, the lowest in two years. Turkey was the world’s third-fastest major economy last year on the back of a credit boom that saw loans growing by 40 percent in October.

Turkey imports more than 70 percent of its total energy and Iran is nation’s biggest crude supplier, according to the Ankara-based energy market regulator. Turkey’s energy bill is likely to rise to $60 billion this year from $54 billion last year, Finance Minister Mehmet Simsek said in remarks on social media website Twitter yesterday.

Prime Minister Recep Tayyip Erdogan is targeting economic growth of 4 percent this year, almost double the 2.3 percent predicted by the International Monetary Fund. Turkey could miss the target as the crisis in Europe, Turkey’s largest trading partner, threatens growth, Deputy Prime Minister Ali Babacan said in an interview with NTV news on Aug. 9.

To contact the reporter on this story: Benjamin Harvey in Istanbul at

To contact the editor responsible for this story: Gavin Serkin at

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