Turkey: Central bank sees 6.5 pct inflation in 2016

ANKARA

The Central Bank of the Republic of Turkey forecast the country's inflation to stand at 6.5 percent at the end of 2016,

Addressing a press conference for the presententation of the bank's 2016 monetary and exchange rate policy in Ankara, central bank Governor Erdem Basci said that the bank will maintain its tight monetary policy, while ensuring foreign exchange liquidity.

Basci did not discuss plans to narrow the difference between Turkey's one-week lending rate and overnight lending rate, known as the interest rate "corridor." The central bank had announced these plans on Aug. 18, but has not given more details since.

Inflation in Turkey rose to an annual 8.1 percent in November from 7.58 percent in October, the Turkish Statistical Institute reported on Dec. 3.

The central bank governer said that he believed the inflation target should be set together with the Turkish government.

According to Basci, the target for inflation set by the bank for next three years would remain at 5 percent, with an uncertainty band of 2 percentage points in both directions.

He said that the expected minimum wage hike, to 1,300 Turkish lira ($446) per month, from the current 1,000 lira ($342) per month, could impact the year-end inflation prediction of the bank by 1.5 points, as an increase in consumer demand is expected to push inflation higher.

Basci emphasized the bank had prepared some measures to deal with the expected rise in U.S. interest rates in December, as well as for fallout from the European Central Bank's stimulus program. But he did not provide any details.

"Measures that have been taken have increased the resilience of the economy against external shocks," he said.

According to Basci, improvement in the current account balance will continue. The country's 12-month rolling current account deficit stood at $40.6 billion, or about 5 percent of GDP, at the end of September 2015.

Russian sanctions against Turkish fruit and vegetable exporters may help ease Turkish inflation, Basci said, as the increased supply in Turkey will reduce prices.

Moscow has approved a raft of sanctions in retaliation for Ankara's downing of one of its fighter jets which violated Turkish airspace on Nov. 24 after it ignored repeated warnings.

Russia will no longer permit the export of fresh fruit and vegetables which accounts for about $1.27 billion annually, according to the country's Agriculture Ministry.

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