Tuesday, 27 July 2010 at 12:59, Reuters, Ankara
Turkey's central bank as expected slashed its forecast for inflation this year on Tuesday and said it would wait until next year before making "moderate" rises in interest rates.
The bank cut its 2010 mid-point inflation forecast to 7.5 per cent from 8.4 per cent and lowered its forecast for 2011 inflation to 5.3 per cent from 5.4 per cent, Governor Durmus Yilmaz told a news conference on its quarterly inflation report.
The 2012 inflation forecast was unchanged at 5 per cent.
Yilmaz said that, even if the bank does raise rates moderately in 2011, policy rates could stay in single-digits for the foreseeable future as long as Turkey's fiscal discipline improves.
Most analysts already expected the bank to wait till next year before tightening monetary policy, given slowing inflation in Turkey. In the April inflation report, the base scenario was for rates to rise in the fourth quarter.
Yilmaz said he expects keenly awaited fiscal policy legislation to be approved by parliament and take effect in 2011, as scheduled.
"As expected, pretty dovish comments from Yilmaz," said Royal Bank of Scotland economist Timothy Ash. "The commentary is supportive for bonds."
After cutting interest rates by more than 10 percentage points to deal with the fallout of the financial crisis, Turkey's benchmark interest rates are at an all-time low and the bank has maintained that they will stay low for a long time.
However, it has changed its benchmark rate to the one-week repo rate, which at 7 per cent is slightly higher than the overnight borrowing rate, now at 6.5 per cent.
Economist Levent Durusoy at Yatirim Finansman said the report contained few surprises.
"This was all rather as expected... and I believe all things Yilmaz said are already reflected in prices," he said.
"It was a little vague on the exact timing of the rate hike initiation in 2011, but we still know it is postponed until next year."
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