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Turkey's Central Bank: limiting consumption rebalances economy

July 1, 2014

Turkey's CB says limiting excessive consumption, the current growth composition of loans not only curbed inflation but also supported rebalancing economy.

Turkey's central bank said on Tuesday that limiting excessive consumption in the country not only helps curb inflation, but also supports rebalancing the economy.

Exports have contributed positively to economic growth as a result of the Central Bank's cut of benchmark rates by 75 basis points, along with the recovery of foreign demand, according to a website statement from the minutes of last month's monetary policy committee meeting.

The Committee expects that a demand composition will support disinflation and will lead to a significant improvement in the current account balance in 2014.

The central bank more than doubled its borrowing rate from 3.5 percent to 8 percent on January 28 and raised the lending rate from 7.75 percent to 12 percent.

At its May 22 meeting, the bank reduced its one-week repurchase rate from 10 percent to 9.5 percent and left the borrowing rate unchanged on Thursday for the first time since it was hiked to protect the lira on January 28. 

The bank said in the meeting minutes that the cumulative impact of food inflation and with the exchange rate figure reaching annual headline inflation of around 6.5 percentage points, the effects of ongoing high inflation rates on pricing behavior needs to be closely monitored.

Turkey's annual inflation rate rose to a two-year high of 9.66 percent in May from a year earlier, rising from 9.38 percent in April due to elevated food prices.

The bank also said that the committee discussed the tension in Iraq at the meeting.

"Uncertainties persist in Iraq, exports and oil prices channels may lead to a slowdown in the rebalancing process, and if higher energy prices persist, it may lead to a limited impact on inflation," the statement said.

It said that inflation expectations, pricing behavior and other factors that affect inflation will be closely monitored and the tight monetary policy stance will be maintained by keeping a flat yield curve until there is a significant improvement in the inflation outlook.

Separately, Turkish exports increased by 6.6 percent last month compared to the same time last year, the Turkish Exporters' Assembly (TIM) announced Tuesday. As the economic recovery in Europe continues, exports totaled $12.5 billion in June.

Exports to neighboring Iraq fell by 21 percent in June, TIM declared with the recent turmoil hampering the export volume to Iraq.

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Source: Anadolu Agency (Turkey)

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