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Jan 03 2019

Turkish rate cut unlikely in January – Nomura

Turkey’s central bank is unlikely to reduce interest rates this month in response to a slowdown in inflation, according to Nomura economist Inan Demir.

The central bank has promised to deliver additional monetary tightening if needed, therefore it would be inappropriate to cut rates at the Jan. 16 meeting without first dropping that tightening bias, Demir said in an e-mailed summary of December inflation data published on Thursday.

Should a rate cut be on the cards, it is more likely to occur at the central bank’s next monetary policy meeting on March 6, just prior to local elections at the end of the month, Demir said.

Turkey’s inflation rate slowed for the second month in December to 20.3 percent, the Turkish Statistical Institute said on Thursday. Inflation had reached a 15-year high of 25.2 percent in October after a currency crisis wreaked havoc on economic stability during the summer.

The central bank’s benchmark interest rate stands at 24 percent. Inflation is running at almost five times its medium-term goal of 5 percent.

The base effects of inflation from the first quarter of 2018 will be unsupportive of an easing in annual inflation this quarter, Demir said. But an extension of tax cuts on cars and household appliances, along with reductions in the price of electricity, gas and water, are likely to counter that negative impact, making a further slowing in price increases in January likely, he said.