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Turkish cbank hikes rates, says could hike again
ISTANBUL, June 16 - Turkey's central bank raised interest rates by an expected 50 basis points on Monday and said it could tighten further, but economists said the bank would not be as aggressive with rate hikes as the market wanted.
The bank, faced with double digit inflation, raised the benchmark borrowing rate to 16.25 percent from 15.75 percent and the lending rate to 20.25 percent from 19.75 percent. The lira was unchanged on the news.
"The size and timing of any further rate rise will depend on developments in global markets, external demand, implementation of fiscal policy and other factors affecting the mid-term inflation outlook," it said in a short statement.
The bank said it could make another measured rate hike if necessary.
Raymond James economist Ozgur Altug said that represented a slight softening in the language from last month, when it said measured tightening "will be on the agenda" if necessary.
"I sense they feel forced to hike rates but they don't want to hike too aggressively because they know what they can do about a supply side shock," he said, referring to soaring oil and food prices.
"The bank does not seem willing to deliver what the market expects," Altug said.
Turkish lira 2010 benchmark bond yields have risen to 20-month highs, and even after easing on Monday trade near 22 percent.
Finansbank economist Inan Demir also said the market was pricing in too big a rate hike, but said it was unclear as to whether the bank's language had softened.
"It might show some softening, but it's very vague and we'll have to wait for the minutes ," he said, noting that the bank was sticking to a tightening bias. He expected that another 50 basis point hike next month would conclude the series of hikes.
NEW TARGETS
The inflation-targeting bank faces soaring inflation expectations, but growth is forecast by the market to ease to less than 4 percent this year -- slow for an emerging market struggling to find jobs for a fast growing population.
The bank, which changed its inflation targets earlier this month after inflation jumped back into double digits, said on Monday inflation was expected to fall gradually from the fourth quarter and to be close to its new 7.5 percent target at the end of 2009.
Inflation had been targeted at 4 percent for next year, a figure the bank has kept for 2008.
Some economists said changing the targets had damaged its credibility. Inflation is seen ending this year at 10.50 percent, according to the central bank's latest external expectations survey.
The central bank hiked rates in May for the first time since 2006 -- reversing an easing cycle launched in September.
High interest rates are bolstering the lira, which has lost just 6 percent of its value this year despite deep political uncertainty at home and turbulence on global markets.
But industrialists complain they suffer from some of the highest interest rates in emerging markets, particularly as growth is already slowing.
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