Turk inflation battle

ANKARA (Reuters) – The Turkish government waded into the battle against rising inflation yesterday, pledging stronger fiscal discipline one week after the central bank raised interest rates by a surprise 175 basis points. «We will support the central bank’s steps for price stability by strengthening fiscal discipline… If necessary we will run a budget surplus,» Finance Minister Kemal Unakitan told a news conference. The current year end target for the central government budget is a deficit of about 14 billion lira. Turkish assets have weakened sharply since June 2, when data showed an unexpectedly sharp rise in consumer price inflation in May to 9.86 percent year-on-year. Turkey is trying to hold back spending and cut its large debt stock under its IMF package to aid recovery from a 2001 financial crisis. Unakitan, speaking as Turkey’s benchmark government bond yield hit 19.81 percent, its highest since January 2005, also said spending would remain within established limits: «This year there will be no spending outside the budget’s allocated funds.» Unakitan also announced that in the first five months of the year the central government budget had shown a surplus of 304 million lira, the first surplus for the period since 1984, after a deficit of 4.027 billion lira in the first four months. In May the central government budget showed a surplus of 4.332 billion lira, compared with a deficit of 2.978 billion lira in April. The primary surplus, which shows government finances before interest payments are taken into account and is seen as an indicator of Turkey’s ability to service its heavy debt load, rose 37 percent in May to 9.001 billion lira. In the first five months of 2006 the primary surplus was already 63 percent of its year-end target, at 20.367 billion lira, Unakitan said.