Facing inflation specter, Turkey is mulling higher interest rates

ANKARA (Reuters) – Turkey’s central bank has signalled it is ready to hike interest rates and intervene in the currency market after data showed inflation rising sharply in May, private television channel CNN Turk said yesterday. It said new central bank governor Durmus Yilmaz had dropped the hint of a tightening of monetary policy during a meeting with some Turkish journalists in Istanbul earlier in the day. The bank’s monetary policy committee holds its monthly meeting to review the inflation situation on Wednesday, June 7, and will announce afterwards whether it will raise or cut interest rates or, as last month, leave them unchanged. Turkey has been particularly badly hit by weeks of turbulence in global emerging markets, with the lira currency shedding about 14 percent of its value in May. It resumed its slide after Friday’s inflation data was released. Worries sparked by tension between the Islamist-rooted government and Turkey’s secular establishment have also contributed to the fall in the lira and other asset prices. CNN Turk quoted Yilmaz as saying there was «no need for panic» over recent developments, which he described as «normal.» «Yilmaz also gave a signal that after (Wednesday’s) meeting an increase in interest rates and currency intervention could come,» CNN Turk said. It gave no further details. Economists say the bank may need to act soon on interest rates to protect its hard-won credibility for fighting inflation. Turkish inflation has fallen to single digits for the first time in a generation over the last few years as the government pursues a tight monetary policy backed by multi-billion dollar loans from the International Monetary Fund. Data released on Friday showed that Turkey posted its biggest monthly rise in prices for 19 months in May, far outstripping market expectations, and that inflation could end the year close to 10 percent. Turkey officially targets year-end inflation of 5 percent.

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