Turkish central bank to adopt formal inflation targets starting in 2006

ANKARA (Reuters) – Turkey’s central bank will shift to a formal policy of inflation targeting from early 2006, its governor, Sureyya Serdengecti, said yesterday. Serdengecti also said the bank would form a monetary policy board which will meet monthly from January 2005 to set interest rates and tackle other monetary policy issues. «Inflation targeting should be seen as part of the goal of normalizing the economy, rather than a new regime,» he told a news conference. Current monetary policy targets money supply, net international reserves and net domestic assets. However the central bank already uses short-term interest rates as its main policy tool against inflation, which has recently fallen to around single digits for the first time in three decades. The economy is recovering strongly from a deep financial and economic crisis three years ago, backed by a $19 billion loan deal with the International Monetary Fund. The central bank slashed interest rates by two percentage points earlier yesterday, saying last week’s deal with the European Union to start membership talks next October had helped to improve prospects for reform and economic stability. Turkey also agreed last week with the IMF on the draft terms of a new, $10 billion standby accord to replace the IMF current program when it ends in February. Serdengecti said the central bank would restart foreign exchange purchase auctions from Dec. 22 at a rate of $15 million a day to build up the country’s reserves. He did not say how often the auctions would be held. «We are aiming to raise our foreign exchange reserves as a medium-term policy, but we can’t specify a level,» he said. Serdengecti said the bank would also start weekly repo auctions, although he did not say when these would begin.