Central Bank may cut rates
Posted by meb at September 15th, 2009
Turkey will probably reduce its key rate this week, making it only the third G-20 member to continue cutting borrowing costs, highlighting the depth of a recession the prime minister once forecast the country would avoid.
The Bank will lower its overnight borrowing rate by half a percentage point to 7.25 percent on Sept. 17, according to 23 of 24 economists surveyed by Bloomberg. The other analyst forecast a quarter-point reduction.
Another half-point reduction would bring Turkey’s rate cuts in the past 12 months to 9.5 percent, more than any other of 50 central banks tracked by Bloomberg except Moldova. Eleven months after Prime Minister Recep Tayyip Erdogan declared the global crisis would “barely touch” Turkey, the country has lost more output than 30 other economies in a study by DekaBank Deutsche Girozentrale.
“Except for the politicians in Ankara, whoever you talk to — in construction, real estate, manufacturing — there’s a consensus that this has been by far the worst ever,” said Tevfik Aksoy, an economist at Morgan Stanley in London.
Turkey’s gross domestic product, or GDP, shrank an annual 7 percent in the second quarter, after contracting a record 14.3 percent in the previous three months, the statistics office reported on Sept. 10.
Bottom of the pack
Frankfurt-based Dekabank’s study, published last week, compared the output of 31 economies in their strongest quarter before the crisis with the weakest period since the recession started. It found that Turkish GDP slumped 14.2 percent, compared with 11 percent in Russia and 6.9 percent in Germany.
Turkey has specialized in producing household appliances and cars that were the first to see demand slump when the global economy went into recession.
The economy was “too reliant on the industries that got hit the worst,” said Aksoy. “Turkey didn’t maybe have a basket of sectors that it could diversify among.”
The economy also shrank more than most because it was so dependent on foreign capital to fund expansion, said Neil Shearing, an economist at Capital Economics in London.
The 12-month current account deficit peaked at $48.9 billion, or about 7.5 percent of GDP, in August last year, the month before Lehman Brothers Holdings Inc. went bankrupt.
“There was this sudden stop in capital flows, and that’s why growth fell off a cliff,” Shearing said.
Consumer confidence
Turkey is unlikely to pull out of recession as quickly as many other countries. Consumer confidence, which had been buoyed by tax cuts on cars and appliances in April, dropped in July for the first time this year when the tax measures were partly reversed. The August index will be released on Sept. 16.
Explaining its last rate cut a month ago, the Central Bank said that demand remains weak, with little sign of a pick-up in employment, investment by companies, or demand for exports.
As job losses mount, Turks have begun to lampoon Erdoğan’s optimism of last year. A popular song on YouTube laments the economy’s woes in verses that end with the mocking refrain, “Thank the Lord, it barely touched us.”
source: Hurriyet daily news
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