Minister: Year End Inflation May Exceed Target

Minister says year-end inflation might exceed targets

Deputy PM Ali Babacan visited the Kovaci martyrs’ cemetery in Sarajevo, where he participated in the 2nd Sarajevo Business Forum on Thursday.

Economy Minister Ali Babacan said on Thursday year-end inflation “might be higher than estimated” due to such “external developments” as an unprecedented hike in oil and food prices in global

Turkey’s consumer prices rose by 0.42 percent in March, bringing the annualized rate of inflation to 3.99 percent, below the 41-year low witnessed in December 2010, the Turkish Statistics Institute (TurkStat) said on Monday.

Speaking to reporters in the Bosnian and Herzegovinian capital of Sarajevo on Thursday, Babacan said the government did not foresee a serious inflationary risk in Turkey for the time being, but said he has some reservations for the end of the year. “However, we anticipate a fluctuation in our inflation rate throughout the year, and the year-end inflation may be a bit higher than our projections,” he said. The central bank had earlier predicted the year-end inflation rate for 2011 would be around 5.3 percent. Observers argue the “external developments” voiced by Babacan could affect Turkey’s inflation figure negatively.

The minister said political risks that have recently escalated in Turkey’s region have developed into a major risk that puts the global economy in jeopardy. “Political crises in our region are affecting world markets, particularly following the latest jumps in oil prices,” he stated. Babacan described the latest developments as “challenging and highly risky.”

The minister asserted that not only Turkey but many of other developing countries are concerned about high inflation risks lingering in the markets. “The major factor that lies beneath a recent Chinese central bank decision to increase interest rates was the inflation risk,” he explained.

In oil markets, the apparent stalemate in Libya, which accounts for a little less than 2 percent of the world’s daily oil production, kept oil prices high. Oil prices hovered near $109 a barrel on Wednesday. Babacan said the government will continue taking timely steps to maintain stability in markets and to brace for any future damage from possible fluctuations in global markets.
‘New measures likely for banking sector’

Making mention of bank loan performance, he said the government — monitoring finance markets closely — would consider additional measures for Turkey’s banking sector “should [they] deem it necessary.” He added, “The markets should be ready for possible measures.”

Current indices show the total loan volume should continue to grow rapidly in the coming months. Amid concerns that a possible boom in loan volume may pose a risk to the country’s balance of payments by widening its current account deficit (CAD), the government had earlier set the target for an increase in bank loans by as much as 20 to 25 percent for 2011. Government officials had earlier cautioned that a current upward movement in total loan volume might force the government to take some extra measures to avoid risk of an unmanageable current account deficit (CAD).

Reiterating the government’s determination to maintain manageable bank loan growth, Babacan emphasized their “number one priority is maintaining financial stability.” “When we first decided to keep bank loan growth under control, some parties expressed concern. I think they failed to perceive the importance of such a policy for the country’s economy; however, today we see more people have understood that the government has a point in this issue, and we have received support from these people,” Babacan said.

08 April 2011
SOURCE: TODAY’S ZAMAN