Turkey’s central bank hints cut in lending rates might not be likely
ISTANBUL (Reuters) – Turkey’s central bank said yesterday lower-than-expected inflation data released over the weekend would not determine its interest rate policy, hinting that a swift reduction in lending rates might not be likely. Local investors may now have to wait for a further cut to overnight lending rates they hoped might reduce treasury borrowing costs and bolster confidence in crisis-hit Turkey’s ability to service some $89 billion in domestic debt. «Yesterday’s data could be good or bad, but it’s in the past. We say at every opportunity that we look at the future, not at the past,» Sureyya Serdengecti told Reuters. The State Statistics Institute on Sunday said consumer price inflation (CPI) rose a monthly 1.8 percent in February, taking the annual rate to 73.1 percent from 73.2 percent in January. The figures were well below market expectations, which had centered at over 3 percent month-on-month, raising the possibility of a fresh cut in key lending rates. «Very benign February inflation data should put downward pressure on interest rates in the short run,» said HSBC in a daily note. «In any case, a further cut in the overnight rate in the next couple of weeks looks likely on the back of yesterday’s price data.» But Serdengecti was more cautious. «If we don’t cut rates immediately after these figures, it doesn’t mean we are pessimistic. The fall in inflation is very positive,» he said. «We will try to look at future inflation. For this, we will look at the employment market, total supply and demand, the balance of payments, monetary trends, foreign exchange and international developments,» Serdengecti said. «Of course, we can cut rates at any time.» Analysts now expect the central bank to wait for early signs of March inflation before cutting rates. «The State Statistics Institute gathers first-round price data from the market on the 20th day of every month. That means the central bank will have an idea about the March inflation on that date,» a senior private bank official said. «I expect a rate move around or after March 20 if the central bank gets positive signals from the economy,» he added. The central bank last cut its overnight borrowing rate by two percentage points to 57 percent on February 20. Tolga Ediz of Lehman Brothers Global Economics says the bank is likely to cut interest rates in the coming weeks. «Once the central bank digests the positive surprise to its forecast and with manufacturing price inflation having fallen dramatically in the last few months… it is likely to conclude that future inflation trends look favorable and cut rates by another 200-300 basis points (2-3 percent) in the coming weeks,» he said in a report. Analysts say a partial recent recovery in the crisis-battered lira was behind the better-than-expected inflation figures in January and February. A stronger lira makes imports, particularly fuel, cheaper. Turkey’s new $16-billion three-year stand-by deal aims to slash CPI inflation to 35 percent at the end of 2002 and return the economy to 3-percent growth from a steep recession. The central bank may fear that lower lending rates, if not supported by an improvement in economic fundamentals, could reverse the downward trend in inflation. Reduced lending rates may also spark a rush to dollars as overnight borrowing becomes less attractive to Turkey’s crisis-hit banks. That could also fuel inflation via higher prices for imported industrial inputs and increased domestic consumption. But Turkey must also pay attention to the sustainability of its domestic debt after crisis last February forced it to issue billions of dollars of debt to shore up the financial sector. And analysts say tackling recession and inflation simultaneously will not just require a tight monetary policy, but increased lending to industry from a battered banking sector. Turkey’s central bank has only recently been given increased independence under IMF reforms and tasked with achieving price stability in a country cursed by decades of high inflation. The central bank has said nothing to indicate it has altered its «cautiously optimistic» tone on the future path of inflation. – On Panamax in Far East EBC has fixed M/V «Apostolos Andreas’ 70,119 dwt, built 1995, delivery China March 1-15 for 8-13 months period at USD 8,250 daily.
