Turkish CB likely to cut interest rates

Bloomberg

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Turkey’s Central Bank will probably reduce the benchmark interest rate by three-quarters of a point this week, the third consecutive cut, as it seeks to avert a recession.

The Bank will lower the overnight borrowing rate to 14.25 percent, the lowest in two-and-a-half years, according to the median estimate of 20 economists surveyed by Bloomberg. Forecasts ranged from a half-point cut to a full percentage point. The Ankara- based Bank will announce its decision at 7 p.m. Thursday.

Expectations of a rate cut sent the U.S. dollar up yesterday, as the greenback traded at near 1.60 Turkish Liras at 5 p.m. The dollar rose more than 2.2 percent in one day.

The Bank will join monetary authorities worldwide in slashing the cost of borrowing as the global credit crisis prompts industrial output to tumble and inflation to slow. Growth in the European Union candidate state hit its slowest in six years in the third quarter and gross national product probably contracted in the fourth.

"All the macro releases are pointing to the same thing: a contraction of gross domestic product, or GDP, higher unemployment and lower inflation," said Türker Hamzaoğlu, economist for Merrill Lynch in London. "This gives the central bank a window of opportunity to bringdown rates at a rapid pace and carry on with front-loaded cuts."

Industrial output declines
Turkish industrial output fell on an annual basis in each of the four months to December, when it fell 13.9 percent, the most in seven years. Inflation in December slowed to 10.1 percent.

The Bank says the global crisis is reducing demand at home and abroad and will help the inflation rate fall further in the coming months. The Bank’s fortnightly survey of businessmen and economists last Thursday showed expectations for inflation falling into line with the Bank’s goal of 7.5 percent at the end of this year.

The Turkish Statistical Institute, or TÜİK, will release jobless data for the three months to November also on Thursday. A Bloomberg survey of five economists sees the jobless rate rising to 10.9 percent, from 9.7 percent in the same period last year. The agency will release consumer confidence figures the following day.

The country is seeking an International Monetary Fund, or IM, loan accord as the crisis cuts the inflow of foreign investment. An IMF delegation will hold negotiations in Ankara next week. Economy Minister Mehmet Şimşek said he plans to reach an agreement in February, daily Dünya said last Tuesday.