IMF welcomes Turk inflation-indexing plan, sees progress

ISTANBUL (Reuters) – Turkey’s plans to introduce an inflation-targeting policy next year should help to keep inflation on its current downward track, IMF First Deputy Managing Director Anne Krueger said yesterday. Speaking at an economic conference in Istanbul, Krueger also said further falls in the country’s ratio of debt to gross domestic product (GDP) would help cushion the Turkish economy from rising world interest rates. «The planned introduction of inflation targeting… should facilitate a further decline in the inflation rate,» she said. Turkish inflation has recently fallen to single figures for the first time in a generation, with data this week showing consumer prices rose by 8.18 percent in the year to April. «There are now additional gains to be had if the Turkish inflation rate can be brought down further, say to the 2-4 percent range,» Krueger said. Backed by a $19 billion International Monetary Fund lending package, the economy has rebounded from a severe economic and financial crisis that peaked in 2001. The IMF’s executive board is set to meet next week to discuss approval of a new deal worth $10 billion in loans. Turkey’s central bank has said it will shift to a formal policy of inflation targeting from early 2006 as part of the process of «normalizing» the economy. Current monetary policy targets money supply, net international reserves and net domestic assets, although the central bank already uses short-term interest rates as its main policy tool against inflation. The economy grew by nearly 10 percent last year, its best performance in nearly 40 years, and the government has also been reducing a heavy debt load that stood at some $240 billion at the end of March.