Türkiye's central bank cautioned Wednesday that rising inflation and higher interest rates will drag on economic growth in the second half of 2006, with weakness expected to persist into early 2007. The bank's monetary policy committee said a full stagnation was not anticipated, but a noticeable deceleration was likely.
The government has pegged growth at 5.0 percent for both 2006 and 2007, supported by a 10-billion-dollar IMF lending arrangement. That target follows three years of robust expansion: 5.9 percent in 2003, 9.9 percent in 2004, and 7.6 percent in 2005. Inflation had also been brought down sharply, falling from 29.7 percent in 2002 to 7.7 percent in 2005.
Since April, however, inflation has climbed again, driven by higher oil prices and a weakening lira. The currency came under pressure from global capital outflows and domestic political tensions. Both the government and the central bank have acknowledged that the 5.0-percent inflation target for 2006 will be missed.
To defend the lira, the central bank raised its key overnight borrowing rate twice in June, lifting it from 13.25 percent to 17.25 percent, and intervened directly in currency markets. The committee said those moves improved the odds of keeping inflation in single digits by year-end and of meeting the 4.0-percent target set for 2007.
Historical summary. TurkishPress restated this wire report, first published in June 2006, in its own words.