Turkish Central Bank: Recovery will be gradual

ANKARA - Anadolu Agency

Turkish Central Bank Governor Erdem Başçı. AA Photo

A gradual economic recovery may be expected after the fourth quarter of 2015, accompanied by a decrease in inflation, the Turkish Central Bank has said in a statement.

The Bank expects that, in this gradual recovery, private demand will “contribute to growth at moderate levels,” a summary of the Bank’s Dec. 24 Monetary Policy Committee meeting has revealed.

Inflation will decrease, driven by the fall in energy prices, the bank said in the statement released on Dec. 31.

It expects that inflation will decline in line with the forecast presented in the bank’s inflation report throughout 2015, “at a faster pace in the first half of the year.”

But oil and gas are not the only commodities with falling prices. “The fall in commodity prices, due to weak global demand, is expected to improve the current account balance by restricting the aggregate spending on imports,” the bank said.

A slight slowdown in exports is supporting this trend. “Europe’s slowing economy and geopolitical tensions have caused exports to lose some pace. However, favorable developments in terms of trade and the moderate course of consumer loans are expected to contribute to the improvement in the current account balance,” it said.

One further concern is that capital flows to emerging markets may continue to be volatile in 2015. “The ongoing uncertainty about the normalization of global monetary policies causes the global risk appetite and capital flows to be data-sensitive,” said the bank.

The Turkish Central Bank has a rich set of policy tools to use against an earlier-than-expected policy rate hike by the Fed. Such a rate hike has caused capital flight from Turkey to the U.S. in the past.

The bank’s statement was an indication of the course of discussion at the last Monetary Policy Committee meeting on Dec. 24, the meeting at which the decision to leave interest rates on hold was made.

The bank said in a statement after its latest monetary policy meeting that the one-week repurchase rate would remain at 8.25 percent, the marginal funding rate at 11.25 percent and the overnight borrowing rate at 7.50 percent.

Its meeting came after the Turkish Lira hit all-time lows in value against the U.S. dollar on Dec. 15 and 16, amid concerns about political instability in Turkey and the risk of spillover from the collapse of the Russian ruble.