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Turkish Sept CPI below forecast, rates move unclear
By Orhan Coskun
ANKARA, Oct 3 - Turkish inflation rose less than expected in September, official data showed on Friday, but analysts were divided on its impact on interest rate cut prospects due to the global credit crisis.
Turkey's consumer prices rose 0.45 percent month-on-month in September, compared with a forecast rise of 1.0 percent, for a year-on-year rise of 11.13 percent, the Turkish Statistics Institute said on Friday.
The producer price index fell 0.90 percent month-on-month in September, compared with a forecast rise of 0.3 percent, for an annual rise of 12.49 percent, the Turkish Statistics Institute said in a statement.
"This decline should bolster the central bank's monetary policy easing attempt. However, we still believe the global credit crisis, which is resulting in a currency correction, could curb the bank's appetite to cut interest rates soon," said Istanbul-based Raymond James economist Ozgur Altug.
Analysts had expected September inflation to be characterised by a rise in food prices which traditionally occurs during the Muslim fasting month of Ramadan, but the actual rise was lower than expected at 0.25 percent.
The biggest rise in the month was shown by education sector prices which rose 2.04 percent, while restaurant and hotel prices rose 1.03 percent.
"The figure is much better than expected and this raises the chance that the central bank will cut rates sooner than later, possibly even this month," said Standard Chartered Bank senior economist Sarah Hewin in London.
The central bank's next rate-setting monetary policy committee meeting is on Oct. 22. Turkey has among the highest rates in emerging markets.
CAUTION OVER LIRA
Other analysts said the central bank was still likely to remain cautious in the wake of recent lira <IYIX=> weakening. The Turkish currency tumbled five percent on Friday in line with dollar strength as trading resumed after a long public holiday.
After the inflation data, the lira stood at 1.3005 against the dollar, virtually unchanged from its level beforehand.
The lira has weakened around 10 percent against the greenback since Sept. 1.
"In terms of any imminent rate cuts I am somewhat sceptical. The currency has been sold off very sharply in the last few weeks which will take some months to feed through," said Capital Economics economist Neil Shearing.
Consumer prices had fallen 0.24 percent in August for an annual rise of 11.77 percent amid lower oil prices, a stronger lira and moderating domestic demand.
On Monday the central bank said it may consider a moderate rate cut if the positive inflation outlook continues, but also said raising rates was an option given global financial woes.
The bank left its benchmark borrowing rate at 16.75 percent and the lending rate at 20.25 percent after its monthly meeting on Sept. 18.
The central bank, which failed over the past two years to meet inflation targets, has revised its target for 2009 up to 7.5 percent, to 6.5 percent for 2010 and 5.5 percent for 2011.
Turkish companies have criticised the central bank, saying business has been hurt by high interest rates and a strong lira. Growth, which boomed between 2002 and 2006, slowed to 1.9 percent in the second quarter, almost half market expectations. (Writing by Daren Butler; additional reporting by Alexandra Hudson; editing by Paul de Bendern and Andy Bruce)
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