Turk CB sees prices risk in expectations

ISTANBUL (Reuters) – Turkey’s central bank said yesterday medium-term inflation expectations remained well above inflation targets in April, creating a risk for price-setting behavior. Inflation currently stands at around 10 percent in Turkey, well above a year-end target of 4 percent and after inflation ended last year at around double the target of 5 percent. «In April, medium-term inflation expectations remained well above the inflation target and this creates a risk factor for price-setting behavior in the economy generally,» the bank said in its half-yearly financial stability report. It added that a rise in industrial output would support gross domestic product growth in the first quarter. It also said that the slowdown in the rise of the banking sector’s gross loan volume continued this year to April and that the treasury’s emphasis on issuing inflation-indexed bonds would lessen sensitivity to the risk from interest rates. At this month’s meeting of the central bank’s Monetary Policy Committee, the bank left the overnight borrowing rate at 17.50 percent and the lending rate at 22.50 percent. The bank said last week a possible partial correction in unprocessed food prices in May could contribute to a fall in annual inflation from a high base a year earlier.

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