Turk CPI target feasible

ANKARA (Reuters) – Turkey’s central bank said yesterday that the new government could meet an IMF-backed inflation target for 2003, but warned of the risks posed by a possible war in Iraq and a recovery in domestic demand. The bank’s biweekly survey of opinion leaders predicted Turkish consumer price inflation (CPI) would fall to 24.8 percent by the end of the year against the IMF target of 20 percent. But the bank said in a written statement, «If the current monetary policy is supported by financial discipline and structural reforms then the 20 percent inflation target for 2003 may be reached.» Turkey fears that war across its borders could compromise an IMF pact and prevent recovery from a punishing economic recession. Consumer price inflation stood at some 30 percent in December, below the government’s IMF-backed 2002 target of 35 percent. «There is a possibility that pressure could be imparted on inflation by rises in the dollar (against the lira) and petrol prices due to the Iraq operation and expectations of that,» the bank said. Turkey is implementing a $16 billion IMF pact after its worst economic slump since 1945. The bank said the 2003 inflation target may be reached providing Turkey’s new Justice and Development Party (AK) government continued to support reforms and monetary policy envisaged in the pact. Analysts said the government’s target for the CPI was an ambitious one and meeting that target would depend on the path the volatile lira currency took against the US dollar. The Turkish lira has weakened to around 1,665,000 to the dollar from recent highs of around 1,510,000 reached after the AK party’s sweeping November election win raised hopes for political and economic stability in the EU candidate. «We think the inflation projection by the government and the IMF is a bit ambitious but not totally out of the question. This largely depends on the exchange rate movements,» said Michael Marrese at JP Morgan in London. The central bank survey predicted the lira would weaken to 2,075,500 to the dollar by the end of 2003. The bank said inflation rates in 2003 would also be determined by consumer demand, which has shown signs of recovery in recent months. «At the top of domestic risks is consumer demand, which while having a limited effect on 2002 inflation could put pressure on prices in 2003… It will be watched closely.»

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