Central bank hopes to reach single-digit inflation by end of 2006

Turkish Daily News

Central Bank Governor Durmuş Yılmaz says lower-than-expected August inflation figures will contribute to reaching a single-digit rate of inflation by year's end

MALATYA Friday, September 8, 2006
Central Bank Governor Durmuş Yılmaz said that lower-than-expected August inflation figures were a significant development for reaching a single-digit rate of inflation by the end of the year, the Anatolia news agency reported.
Speaking at a conference in Malatya yesterday Yılmaz reminded his audience that the inflation target for 2007 and 2008 were 4 percent and that these targets were still achievable, reported Anatolia.
He did not comment on this year's target apart from saying that the level of inflation in August, which fell by 0.44 percent during the month, would contribute to reaching single-digit inflation by the end of the year, Reuters said.
Yilmaz repeated that economic growth would slow to some extent in the second half of this year and in the first half of 2007 and warned that oil prices, rigidity in services prices and political developments were still risks for inflation, reported Reuters.
The bank's target of 5 percent inflation for 2006 is no longer expected to be reached given that actual year-on-year inflation has been double that level in recent months.
Turkey's current account deficit as a percentage of gross national product is expected to fall this year, the central bank governor said.
Treasury Undersecretary Ibrahim Canakci said in late July that he expected Turkey's current account deficit to be around 6.5 percent of GDP in 2006. The deficit has been hurt recently by a large oil bill.
Economic growth is forecast at 5 percent this year for Turkey after several years of stronger growth.
Yılmaz was giving a lecture at a conference titled “Money Policies” co-organized by the Malatya Chamber of Commerce and Dünya newspaper. He said the reasons inflation figures were higher than expected for the first seven months of the year, especially in April and May, were fluctuations in financial markets and uncertainty created by domestic and international developments.
Inflation expectations for the next 12 months had increased from 5.47 in April to 8.07 in July and those for the next 24 months were at 4.67 in April but at 6.07 in July, a partial divergence from inflation targets, Yılmaz noted.
He also commented on political risks, also saying that they “have been referred to frequently lately.” He added: “As the central bank, we are closely monitoring any political risk factor that may have a negative effect on inflation. We will take the necessary measures if the need arises.”
On the issue of unemployment, Yılmaz acknowledged its importance and the need for a solution. He suggested that in order to provide a permanent and sustainable solution, a long-term view should be adopted. “Some active policies to create job opportunities may include strengthening the relationship between the real sector and the financial sector to improve the investment environment and to create stability in the macroeconomic environment by sustainable economic growth,” he added.