The Turkish lira and bonds pared recent sharp gains on Friday, but stocks edged higher after upbeat industrial production data indicated economic growth this year could easily exceed forecasts of 6 percent. Industrial production surged jumped 11 percent in August from a year earlier, well above a consensus forecast of 7.5 percent in a Reuters poll.
"The "guts" of the data is encouraging, though; particularly the strong rebound in capital goods production - a proxy for investment (as well as export) demand - and in durable consumer goods may suggest that the aggregate demand conditions may be stabilising," Goldman Sachs economist Ahmet Akarli said in a note. The lira hit a two-year high earlier this week and bond prices rose to their highest in a year as expectations that monetary policy in the United States and elsewhere will remain low continued to propel funds into emerging markets.
The main Istanbul Stock Exchange 100 index rose 0.69 percent on Friday to 67,217.24 after declining on Thursday. It hit a record high on Wednesday and has rallied 11 percent since August 31. Most analysts expect the Turkish central bank to leave its benchmark interest rate unchanged at 7.0 percent at a policy meeting next week but the bank's statement afterwards could move markets.
"Besides keeping the key policy rate unchanged at 7.00 percent (which is broadly expected), the Turkish central bank might mention that the current rise in inflation is only temporary," Danske Bank said in a report. "This is our outlook for Turkish inflation, which could drop as low as close to 5 percent in the first quarter of next year, according to our models," Danske Bank said. Annual inflation rose to 9.24 percent in September.
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