Turkey should pull down inflation goal, IMF says
Consumers are seen at a technology market at during a discount day in the southern Turkish province of Antalya. The IMF says lower inflation will help the Turkish economy. AA photoAn International Monetary Fund report has recommended to Turkey that it lower its inflation target and said its monetary policy is “overburdened” by different objectives.
In an annual assessment of the country’s economic policy, dated Nov. 14 and released over the weekend, IMF economists said Turkey’s “unconventional monetary policy framework” had a potentially conflicting set of objectives.
While the authorities consider the current inflation target of 5 percent “appropriate,” decreasing it would help the country’s competitiveness, the report said, according to Bloomberg News.
“[The] staff advocated a much tighter structural fiscal position and financial policies geared to moderating systemic risk … [That would] allow monetary policy to maintain both inflation and interest rates at levels similar to other emerging markets within a conventional inflation-targeting framework,” the assessment said.
Under Gov. Erdem Başçı, the Turkish Central Bank has developed a policy mix designed to reduce demand for imported consumer goods through limits on bank lending while rate cuts weaken the Turkish Lira. The bank this month maintained the corridor within which it varies interest rates daily and offered banks increased longer-term financing at a higher rate.
The IMF report predicted growth for Turkey at 2 percent this year. In a more recent report prepared for G-20 officials, who met Jan. 19-20, and released this week, the IMF forecast growth of 0.4 percent for Turkey this year, down from 8.3 percent in 2011.
Turkey insists on growth
Turkey dismissed the IMF estimates. Deputy Prime Minister Ali Babacan said at the World Economic Forum in Davos, Switzerland, last week that the country stood by its forecast of 4 percent growth this year.
Başçı told a Turkish broadcaster during an interview at Davos that he felt comfortable with the level of Turkish growth after seeing the atmosphere at the forum.
While moderating a session at Davos, Martin Wolf, the chief economics commentator at the Financial Times, addressed Babacan, saying: “You are the most privileged person here […] Give us a lesson.”
However, global finance chiefs warned no economy was safe from Europe’s debt crisis, adding urgency to their calls for its governments to deliver a swift resolution.
Policy-makers from Hong Kong to Canada used the last full day of the World Economic Forum to push euro-region counterparts to boost their bailout cash pile to protect Italy and Spain. They also pressed Greece and its creditors to strike a credible agreement to cut the nation’s debt.
“I’ve never been as scared as I am about the world,” Donald Tsang, Hong Kong’s chief executive, told Bloomberg News on Jan. 28 in Davos. “Nobody’s immune. You need decisive action. You need to inspire confidence.”