Posted on 03 June 2011
Turkish inflation has surged in May, making a rate rise in the country ever more likely in the near future. According to data from Turkstat, the annual inflation rate soared to 7.2% in May, from the almost 50 year low of 4.3% the month before. The Central Bank had forecast a rise, but only to 5.7%. The monthly rise was even further beyond expectations; with the Central Bank forecasting 0.69% and inflation delivering 2.4%.
This rise has analysts wondering just how much longer the Central Bank really can hold off on rising interest rates. The strategy so far has been to keep rates low, thereby devaluing the currency, stemming the capital inflow that is (partly responsible for) swelling the current account deficit. The policy has been successful in weakening the lira, but the other arm of the policy; increasing reserve limits to quell domestic lending was less successful, meaning that not much headway in the overall aim — closing the current account deficit — has been made.
This lack of progress, which has triggered an investigation into the policy from Turkey’s banking regulator the banking regulation and supervision agency (BDDK), is another reason why analysts believe that low rates won’t be around for too much longer.
For property investors, this presents a double header of reasons why those considering buying a property in Turkey to buy sooner rather than later. Firstly the lira is dramatically weak right now, but will potentially strengthen as rates are risen and central bank policy comes more in line with what investors expect rather than scary experiments. And secondly because anyone buying with a Turkish mortgage will obviously pay higher interest as rates are increased.