Turkey’s Feb CPI rises sharply; rate cut likely

ANKARA – Turkish inflation jumped sharply in February on higher food prices, data showed yesterday, but analysts said they still expected another interest rate cut before the central bank pauses in its monetary easing policy. Consumer prices rose by a higher-than-expected 1.29 percent in February for an annual rise of 9.1 percent, the data from the Turkish Statistics Institute showed. The producer price index rose 2.56 percent in the month for an annual rise of 8.15 percent. «We’ve got a big number but it’s exclusively down to food. The central bank warned about such a spike in inflation,» said Tolga Ediz of Lehman Brothers. The central bank said last week in a summary of its last rate-setting meeting that poor weather in February could result in a large rise in unprocessed food prices, which in turn would push the index higher. Excluding unprocessed food prices, CPI rose by just 0.12 percent, economists noted. But they conceded that Turkey’s year-end inflation target of 4 percent is now out of reach. The lira eased slightly to 1.2200 against the dollar on the interbank market after trading at 1.2180 before the high inflation figures were released. Financial markets are closely watching the inflation data for clues on the central bank’s next move on interest rates. In a Reuters poll, the median CPI inflation forecast was for a 0.45 percent month-on-month rise, while the PPI was seen rising 0.80 percent. Some economists said they were also concerned by the impact of rising global energy prices for Turkey, which imports most of its oil and gas. The weakening lira could also stoke inflationary pressures, they warned. But they said the odds were still in favor of a further rate cut this month. «We still think in March the central bank will cut (rates by) 25 basis points but then will pause the easing cycle to launch it again in the last quarter,» said Guldem Atabay of Ekspres Invest. Echoing that prediction, Mehmet Besimoglu of Oyak Securities said: «We keep a 25-basis-point rate cut (forecast) for March. Of course, we have to see the central bank’s announcement tomorrow.» The bank cut the benchmark borrowing rate by 25 basis points last month, the sixth consecutive month of rate cuts which have in total sliced 225 basis points off the rate, which remains among the highest in emerging markets. In January CPI rose 0.80 percent month-on-month for a year-on-year rate of 8.17 percent. In February 2007, consumer prices rose 0.43 percent for a yearly rise of 10.16 percent.

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