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Turkish inflation continues to fall, rate cuts likely
Economists had forecast a 0.16 percent month-on-month rise in the consumer price index (CPI), which rose 5.33 percent year-on-year, according to Turkish Statistics Institute (TurkStat) data.
The rate dove to an almost 40-year low of 5.24 percent in May before climbing to 5.73 percent in June. Consumer food and non-alcoholic drinks prices fell 1.57 percent from July, while clothing and shoes prices dropped 5.22 percent.
The producer price index (PPI), a measure of wholesale inflation, fell by 1.04 percent when compared to the same month last year.
The rate had dived to a near 40-year low of 5.24 percent in May before climbing to 5.73 percent in June. Inflation in July was 5.39 percent.
“We believe August '09 inflation figures strengthened the central bank's hand for further rate cuts,” said Ersagun Şimşek, director of Tera Brokers in Istanbul, adding that the expectations of investors of lower rates to come would likely exert a positive yet limited force on the markets. But despite the positive effects that the rate cut may have exerted on markets, the İstanbul Stock Exchange's (İMKB) main index, the İMKB-100, was down 0.41 percent at the close of the first session, weighed down by the performance of major markets around the world, experiencing losses as investors continue cashing in on profits made over the course of a month-long rally.
The Turkish Central Bank has trimmed interest rates by more than nine percentage points since November, and rates now stand at 7.75 percent. When the central bank cut rates last month it suggested that unless there were clear signs of a recovery, it would continue “measured rate cuts”. Previously the central bank announced that inflation was unlikely to achieve the year-end goal of 7.5 percent. The lower-than-expected figure boosted bonds. The benchmark bond yield fell to a low of 9.59 percent in over-the-counter trade from an official closing trade of 9.70 percent.
“[The data] definitely surprised on the downside. Looking at the breakdown, the decline was driven by food prices to some extent and ongoing sluggish domestic demand,” said Manik Narain, an economist at Standard Chartered Bank in London.
According to figures released by TRT's Web site, the biggest increase in food inflation came from cucumbers, whose price rose by 12.89 percent in August. Watermelon experienced the greatest drop in prices, with a drop of 40 percent.
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