The Fed’s possible rate hike should not create concern for Turkey, according to the CBRT Governor Başçı. As long as budget dicipline remains strong, shocking effects will be temporary
Başçı said that even though exports to European Union countries have increased, the problems on the southern border of Turkey are hindering total exports. The southern border, a region where international trade is normally very active, is now a hot zone due to terrorist attacks and military interventions.
Başçı stressed the importance of budget discipline, stating that every shock effect on the economy will be temporary as long as budget discipline remains strong. With a possible interest rate increase from the Fed on one side and geopolitical disturbances on the other, the Turkish economy has to endure exterior and interior shocks. With these risks active, Başçı forecast growth in the Turkish economy a bit below the medium-term economic program goals. ”Inflation is expected to be, with 70 percent probability, between 6.0 percent and 7.8 percent (with a mid-point of 6.9 percent) at year end 2015 and between 3.7 percent and 7.3 percent (with a mid-point of 5.5 percent) at year end 2016. Inflation is projected to stabilize at around 5 percent in the medium term,” the report said. Başçı linked a possible easing in monetary policies to a significant drop in inflation. “There is not yet a significant improvement in the inflation outlook. We forecast inflation to reach our targets in the medium term,” Başçı said. Başçı noted that the Turkish lira’s decline in value against the dollar has delayed improvement in inflation. Domestic consumption in Turkey is rising moderately and not on the basis of consumer credit, Başçı pointed out. He said that this is an indication of employment growth and that economic activity was speeding up compared with the previous quarter. Governor Başçı also indicated that inflation shouldn’t be over 7 percent, stating that inflation might be realized below 7 percent for this month and should continue on that trajectory. Başçı remarked that a collective effort is required to hold inflation below the 7 percent level and stated that measures taken by the Committee for Food and Agriculture could drive yearly inflation down to 8 percent.
Fed meeting pushed dollar to 2.79 against Turkish lira
The dollar started to gain value against the Turkish lira following the U.S. Federal Reserve (Fed) meeting, held yesterday, reaching 2.79. The Fed announced that the U.S. economy and employment are continuing to get stronger, leaving the door open for policy makers to increase interest rates. While the dollar was being traded at the TL 2.6550 level last Monday, this week it reached 2.70 levels, closing Wednesday at 2.76. With the recent bombing in Suruç, along with airstrikes targeting the terrorist organization PKK and the Islamic State of Iraq and al-Sham (ISIS), the dollar reached 2.77 against the Turkish lira, the highest level since June 9. After the Fed’s announcement, the dollar climbed to 2.7750 against the Turkish lira, and was traded at about 2.90 in currency baskets. The dollar peaked at the level of 2.79 on Thursday at 12:37 p.m.
Resource: Daily Sabah, July 31, 2015