Central Bank cuts inflation forecast

ANKARA - Hürriyet Daily News

Central Bank Gov Erdem Başçı says that consumer inflation may take a downward path after it rose in June. The bank forecasts 6.2 percent year-end inflation. AA photo

The Turkish Central Bank has revised down its year-end inflation forecast, citing the falling downward trend in energy and food prices.

“We have dropped our year-end inflation forecast buy 0.3 percent to 6.2 percent, based on the downward assumptions basically on energy and food prices. We expect inflation to present a downward trend after a limited increase in July,” Governor Erdem Başçı said yesterday at a press meeting revealing the bank’s third report on inflation. Consumer inflation was at 8.9 percent in June, according to the Turkish Statistical Institute data.

Gov. Başçı said the credit growth assumption for this year was unchanged from 2011, at about 14 percent.

Year-end expectation
“We expect the year-end inflation for 2012 to be between 5.3 percent and 7.1 percent with a median of 6.2 percent. The year-end inflation forecast for 2013 is between 3.4 percent and 6.8 percent with a median of 5.1 percent. We foresee that the inflation rate will stabilize at the target of 5 percent level in the medium term,” he said, according to Doğan news agency.

“We have cut our oil price forecast to $110 per barrel from $120 for this year and to $100 from $115 for next year,” Başçı said, adding that the bank also revised down food inflation from 7.5 percent to 7 percent for 2012.

A substantial drop in inflation will take place in the last quarter of the year, he said, adding that core inflation indicators would “keep its downward trend during the rest of the year.” But Başçı took a cautious stance. He said it was highly likely that the policy rates will be kept at historically low levels for a long time. Keeping the interest rate corridor wide serves the purpose prevent capital inflows, Başçı explained, and this tool decreases the need to buy or sell foreign currency. The Central Bank has strongly signaled no policy rate cuts in the next month, said Üzeyir Doğan, research director at Marbaş Securities.

“We do not expect an interest rate cut decision in the August or September monetary policy meetings, given the current situation in the world economy,” said Gizem Öztok Altınsaç, an economist at Garanti Yatırım.