Rating firm praises Central Bank policies

The Turkish Central Bank's monetary-policy mix is "credit positive" because it limits speculative capital inflows and narrows the current-account deficit, Moody's Investors Service said yesterday. The combination of lower interest rates to deter hot-money inflows, and higher reserve requirements to damp demand, is "not without risk but they are likely to be successful," senior Moody's analyst Sarah Carlson said in a report. "The timing of future policy rate increases will be important," because failure to respond quickly to a pick-up in inflation could damage CB credibility, she added. Deputy Prime Minister Ali Babacan last month also praised the policy, which CB Governor Durmus Yilmaz started in December. Two months of rate cuts have taken the benchmark one-week repo rate to a record low of 6.25 percent. Yilmaz said the bank is more than compensating for that by forcing banks to deposit more reserves at the CB and that the total impact of the policy is tighter monetary conditions. Inflation slowed to a 40-year low of 4.9 percent in January from 6.4 percent the month before. Yilmaz said he expects further falls in the coming months before inflation accelerates again. The bank forecasts year-end consumer-price growth of 5.9 percent. Moody's rates Turkish credit Ba2, two notches below investment grade, with a positive outlook. The economy probably grew about 8 percent last year, driven by domestic demand, Yilmaz said. The deficit in the current account, the widest measure of the balance of trade and services, widened to $44.9 billion (about 6 percent of gross domestic product), in the 12 months through November.