"Interest rate cut would be a premature reversal," says Fitch director
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Fitch Ratings senior director says the capital flows to Turkey could increase in the near future and Turkish Central Bank's decision to slash interest rates likely would be a premature reversal.
The capital flows to Turkey could increase in the near future and Turkish Central Bank's decision to slash interest rates likely would be a premature reversal, said a senior director with the international credit rating agency Fitch Ratings. Global ratings agency Fitch Friday has affirmed Turkey's long-term foreign and local currency Issuer Default Ratings at 'BBB-' and 'BBB', respectively, after the country continued commitment to its fiscal sustainability. "It would not be surprising if would see some portfolio rally to Turkey because Turkey have put up the interest rates and the election outcome has been viewed as very positive and also there is a whole issue of whats going on in Russia," Paul Rawkins told.
Rawkins said: "Funds have been taken out of Russia. Turkey looks like quite attractive to alternative funds. Although the policy has been tightened and although there has been an external shock, Turkeys economy is still growing."
Rawkins said the Turkish Central Bank has been really clear about interest rates which are not likely to go down until the inflation comes off.
Turkey's C.Bank expects that the country's inflation would increase until June. "If the economy slowed dramatically more than we expected perhaps one could foresee there could be pressures for cuts in interests rates, but I think at this stage one looks whats going on in global environment ," he said.
He said Turkey's C.Bank has a difficult challenge ahead in terms of cutting interest rates. "In the current environment [cutting interest rates] would be really difficult. After all Turkey has got very large current account deficit, very large external financial needs, it has quite limited international reserves. Investors demanded a higher risk premium and the Central Bank have recognized that and put interest rate up, putting it down at this stage would be seen as premature reversal."
Rawkins said the country's 8,5 percent inflation is average and it would not be surprised over 9 percent. "But I think if it rose to double digits, it would clearly raise questions about whether policy should be tighter."
The Consumer Price Index rose by 1.13 percent in March 2014 compared with February - an increase of 8.39 percent on the same period last year, the Turkish Statistical Institute (TurkStat) reported on Thursday.
Rawkins also said that Fitch's next review of the rating would be six months from today. "It would be pretty late September, we are not expecting to take any rating action before than."
Rawkins said: "Funds have been taken out of Russia. Turkey looks like quite attractive to alternative funds. Although the policy has been tightened and although there has been an external shock, Turkeys economy is still growing."
Rawkins said the Turkish Central Bank has been really clear about interest rates which are not likely to go down until the inflation comes off.
Turkey's C.Bank expects that the country's inflation would increase until June. "If the economy slowed dramatically more than we expected perhaps one could foresee there could be pressures for cuts in interests rates, but I think at this stage one looks whats going on in global environment ," he said.
He said Turkey's C.Bank has a difficult challenge ahead in terms of cutting interest rates. "In the current environment [cutting interest rates] would be really difficult. After all Turkey has got very large current account deficit, very large external financial needs, it has quite limited international reserves. Investors demanded a higher risk premium and the Central Bank have recognized that and put interest rate up, putting it down at this stage would be seen as premature reversal."
Rawkins said the country's 8,5 percent inflation is average and it would not be surprised over 9 percent. "But I think if it rose to double digits, it would clearly raise questions about whether policy should be tighter."
The Consumer Price Index rose by 1.13 percent in March 2014 compared with February - an increase of 8.39 percent on the same period last year, the Turkish Statistical Institute (TurkStat) reported on Thursday.
Rawkins also said that Fitch's next review of the rating would be six months from today. "It would be pretty late September, we are not expecting to take any rating action before than."
