Turkish Central Bank Likely to Keep Rates Unchanged: Week Ahead

By Steve Bryant

Nov. 17 (Bloomberg) -- Turkey's central bank will probably leave the benchmark interest rate unchanged at more than five times the rate in the euro zone this week to defend the lira from the impact of the global economic crisis.

The bank will keep the overnight borrowing rate at 16.75 percent, where the Ankara-based lender has held it since July, according to all 16 economists surveyed by Bloomberg. The bank will announce its decision at 7 p.m. on Wednesday, Nov. 19.

Turkey is holding the cost of borrowing high, even as developing economies reduce their rates, to preserve the value of the lira and protect companies that have foreign currency debts. The lira has fallen 21 percent against the dollar since the start of October. The global uncertainty means Turkish monetary policy must remain ``cautious,'' the bank said on Oct. 31.

``The bank's major concern has to be the lira,'' said Yarkin Cebeci, economist for JPMorgan Chase & Co. in Istanbul. ``They know that any easing would be perceived as premature and have a negative impact on the lira.''

Turkish companies had foreign currency debts that exceeded their assets by $81.4 billion liras at the end of June, according to the latest data from the central bank. A decline in the local currency would fuel inflation by driving up import costs and would raises doubts over firms' ability to finance their borrowing.

Turkey's credit rating outlook was cut to negative from stable by Standard & Poor's on Nov. 13 on concern the country's banks will struggle to meet their financing needs next year because of the global credit crisis.

Rating Cut

Turkey's government and the International Monetary Fund are close to signing a new economic accord, Prime Minister Recep Tayyip Erdogan said Nov. 15. ``We are at a point very close to a solution,'' Erdogan told reporters after a press conference in Washington, where he attended a summit of leaders from the world's largest economies to discuss the global financial crisis.

Dominique Strauss-Kahn, the IMF's managing director, said at a press conference he is confident of reaching agreement on a new accord soon.

Inflation accelerated to 12 percent in October from 11.1 percent a month earlier. The bank is aiming to slow consumer- price growth to 7.5 percent by the end of next year.

The statistics office will announce unemployment data for the three months through September today at 10:00 a.m. in Ankara. The jobless rate in the three months to August was 9.4 percent, the highest summer jobless rate since the measure began in 2005.

Consumer Confidence

The office will also release November consumer confidence figures today. The CNBC-E channel's measure of confidence fell to its lowest since 2002 in October, the channel said on Nov. 3.

The benchmark ISE National 100 Index fell 4.6 percent last week as the global credit crunch brought fears of a recession and cut appetite for investments in emerging markets such as Turkey. The lira weakened almost 4 percent to 1.6063 per dollar as of late Nov. 14. The yield on the benchmark lira bond tracked by ABN Amro rose 56 basis points to 22.16 in the week.

Koc Holding AS, Turkey's biggest company, is due to report third-quarter earnings this week. It hasn't specified a date yet.

The following is a list of important events in Turkey next week:

Event                                                  Date
Unemployment rate                                      Nov. 17
Consumer confidence                                    Nov. 17
Base rate decision                                     Nov. 19
Koc Holding earnings                                   TBA

To contact the reporter on this story: Steve Bryant in Ankara at sbryant5@bloomberg.net.