By EMRE PEKER And YELIZ CANDEMIR
ISTANBUL—Turkey’s annual inflation rate rose less than expected in June, signaling that the central bank may meet its year-end inflation forecast and shift to a looser monetary policy to boost growth.
The 8.87% increase in consumer prices last month beat the 9.2% forecast by economists surveyed by Dow Jones Newswires. While yearly inflation accelerated from 8.28% in May, monthly inflation fell 0.9%, beating market expectations of a 0.5% drop.
The news pushed the lira higher against the dollar, holding onto a 0.5% gain at 1.7953. Two-year benchmark bond yields dropped to 8.35% from 8.44% after the inflation figures were released.
Analysts said the better-than-expected price data could make central bank Governor Erdem Basci more likely to cut funding costs, spurring growth in the second half of the year as inflation slows.
A looser monetary policy would support the Turkish government’s 4% annual economic growth target, less than half the 2011 expansion of 8.5%, which was second only to China among the world’s major economies. Turkey’s gross domestic product expanded 3.2% in the first three months of 2012, compared with 11.9% in the first quarter of last year.
“The improvement in the inflation outlook both in terms of headline and the core component supports a less-hawkish monetary-policy stance, and the chance of a reduction in the interest rate corridor is high in the upcoming monetary-policy committee meeting,” said Nilufer Sezgin, chief economist at Ekspres Invest, the Istanbul-based brokerage owned by Dexia SA’s Denizbank.
Turkey’s resilient economy stands in contrast with those of most neighbors in the European Union, in particular Greece, whose leaders have called on their citizens to emulate the success of Athens’ old rival in bouncing back from economic adversity.
But stubbornly high inflation has been one cause for concern among investors after the lira dropped 18% against the dollar last year, helping to push price growth to a three-year high of 10.6% in January and spurring fears of a pronounced spike.
Turkey’s central bank governor has been varying rates daily from 5.75% to 11.5% since October, using an unorthodox monetary policy to support the currency and to rein in one of the highest inflation rates among emerging markets. The central bank cut bank borrowing costs to a two-month low of 8.5% today from as high as 10.2% on June 5.
“In the coming periods, the central bank will contribute to growth by cutting the ceiling” and spurring domestic demand, said Cem Tozge, an Istanbul-based director at Ata Asset Management, which oversees $2 billion of investments. He added that Gov. Basci may cut the top of the central bank’s rates corridor in September.