Turkish Central Bank: Structural Reforms Necessary

Turkey's central bank said on Friday that strengthening structural reforms would support macroeconomic stability in the country.



Economic activity is expected to grow moderately and gradually in the second half of the year, according to a website statement from the minutes of this month's monetary policy committee meeting.



The Committee expects the moderate recovery of domestic demand in Turkey to continue into the final quarter.



However, the bank added that a possible slowdown across European economies and geopolitical tensions may cause external demand to weaken.



"Uncertainty over global monetary policies, the recent increase of volatility in financial markets and weak consumer and investor confidence pose downside risks to growth," the bank said.



"Thus, demand conditions are expected to limit the upside pressures on inflation while domestic demand developments will support the improvement in current account balance," it continued.



The Turkish Central Bank has left its benchmark interest rate at 8.25 percent on Oct 23 of this year for a third month.



The committee's decision to leave rates where they were was widely expected, as Turkey's statistics authority, TurkStat, reported on Oct. 3 that the Consumer Price Index had risen to 8.86 in September.



The bank said in the meeting minutes that food prices remained elevated in the third quarter of 2014, which led annual consumer inflation to exceed forecasts.



"Upon the evaluation of assumptions underlying inflation forecasts and external conditions, given the developments in import and oil prices, food prices, energy price adjustments, output gap and the underlying inflation trend -- year-end inflation forecasts for 2014 and 2015 were revised upwards," the bank said.



The bank also said that introducing additional support to the core liabilities of financial institutions, through remuneration of required reserves held in Turkish lira, would spur balanced growth and domestic savings.



"The Committee closely monitors developments on fiscal policy and tax adjustments with regard to their effects on the inflation outlook," the statement said.



It said that elevated food prices delay the improvement in the inflation outlook, yet falling commodity, especially oil, prices, are expected to support disinflation foreseen for the next year.



Separately, Turkey's Central Bank on Friday forecast inflation to decline sharply in 2015 from the previous year.



Central Bank Governor Erdem Basci said inflation would reach a mid-point of 8.9 percent in 2014, up from the 7.6 percent forecast in the bank's previous report, and the mid-point of 6.1 percent in 2015. 



Basci spoke at a news conference announcing the bank's quarterly inflation report in Istanbul.



"In 2015 inflation is forecast to be between 4.6 percent and 7.6 percent," he said.



www.aa.com.tr/en - Ankara