ISTANBUL - Turkish Daily News
Comments by Turkey's banking chief and a global decline in commodity prices fueled the U.S. dollar on Thursday and Friday, as the greenback rocketed to just below YTL 1.24, its highest since the start of July.
Durmuş Yılmaz, chief of the Central Bank, hinted at a possible interest rate cut Thursday, on perceptions that inflation was easing after year-on-year August inflation declined to 11.8 percent. The bank offers a 16.75 percent interest rate, the highest in Europe.
While market players observed the rise in the dollar, some analysts said Yılmaz's comments were �a negative surprise.�
�Our main concern has been the output cost of the unmeasured tightening rather than inflation itself,� said Burcu Günhar, an analyst at İş İnvestment, in a note. �Since monetary tightening has begun to work through a multiple effect due to slower demand from Turkey's trade partners, we have already noted that if commodity prices continue to fall, and if the global slowdown gets more serious, then the Central Bank might be forced to an early cut either at the end of this year or early next year.
�Therefore we are happy with the fact that the Central Bank is not blindfold biased toward continuing the tight monetary policy, but follows a monetary reaction, which is data dependent,� Günhar said. �We believe that the comment was a shock to [market players] and hence created a negative surprise.�
Dollar gaining globally:
�The Central Bank's statement that it [might] lower interest rates in the short-term, was not expected by the markets, and I would say it is a surprise,� said Tolga Kotan, analyst at Finans Portföy. �Markets have been expecting a decline in interest rates in the first quarter of next year. The recent decline in oil prices [is probably] impacting the Central Bank decision,� Kotan told the Turkish Daily News on Friday.
�The dollar is not only currency rising against the YTL,� he said. �It is currently gaining all over the world, particularly in emerging markets such as Turkey, Brasil and Hungary. As long as such a rise does not display a sharp character, it is positive for the Turkish economy.�
�The Central Bank's decision represents an inconsistency,� said Mahfi Eğilmez, an economist at Bilgi University. �Last year it increased interest rates due to rising oil prices and now it is planning to lower them again, in regard to the [same phenomenon.] The Central Bank is acting too quickly.�
Concerning the rise in the dollar, Eğilmez noted the U.S. economy grew more than expected in the second quarter.
�The growth rate was over the potential growth band of the U.S., which ranges between 2 and 3 percent,� he told the TDN. �That is why the dollar is appreciating globally, not only against the YTL. This is not a good sign for Turkey, whose exports are based on the euro and which becomes indebted by the dollar. Thus, dollar's appreciation will affect the current account deficit negatively.�