Sub Categories: » HOMEPAGE / OPINION/ EMRE DELİVELİ
Tuesday, September 13 2011 , Your time is 15:58:00
One of the leading Turkish economy themes of this past week was the large decline in government bond yields.
After falling from 9.45 to 8.85 percent in June, the benchmark government bond finished the week at just above 8 percent on Friday. According to Bloomberg, remarks from Central Bank Governor Erdem Başçı that the Bank might revise down its inflation forecast had already triggered speculation that the policy rate might be cut.
Markets got what they wanted last week, as the Central Bank lowered the average funding rate of banks, which is the effective policy rate, to 8.20 percent on Friday from 9.02 percent the week before by lending to banks at the one-week repo rate of 5.75 percent throughout the week. Markets were also responding to June inflation. At 8.9 percent, yearly inflation turned out to be much lower than expectations of 9.5 percent.
Finally, despite the recent improvements in the current account, the balance of payments picture remains challenging. Unless capital inflows, which have so far remained low relative to the current account deficit, pick up in the second half of the year, the Bank will not have much room to ease without hurting market sentiment and putting pressure on the lira.
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