World Bank sees Turkish market volatility, no crisis

The World Bank expects Turkey's financial markets to remain volatile over the next couple of months but that should not result in a crisis, the bank's Turkey representative said on Tuesday.
Worries about inflation and political instability, including the possibility of early elections, have knocked some 15 percent off the value of the lira since the end of April, while benchmark bond yields have jumped above 18 percent.
Andrew Vorkink, the World Bank's country director in Turkey, told reporters markets were overreacting to the current situation and said economic fundamentals were "correct".
"The current fluctuations are likely to continue for the next couple of months until global market conditions stabilise. In tomorrow's central bank meeting I would not be surprised if the rates go up a little," he said.
Turkey's Central Bank is set to hold an extraordinary meeting of its monetary policy committee on Wednesday in the face of the market volatility.
Economists expect it to hike interest rates for the first time in more than four years after May inflation data released on Friday came in at almost 10 percent.
"I do not see a crisis in Turkey coming out of these fluctuations," Vorkink said.
"There is uncertainty on inflation, interest rates and elections. Markets don't like uncertainty but they are overreacting to the situation. It will start to settle down. The economic fundamentals of Turkey are correct," he said.
The fall in the Turkish lira is within the normal range of the past three years, said Vorkink. He added that a weaker lira would help Turkey's balance of payments.
"The current account deficit has been high and it will probably be high this year but the fall in the lira will make imports more expensive and will raise exports," he said.
He said that the inflation would come above an official target of five percent, but this should not be a major concern.
"A couple of percentage points is not a big problem for Turkey," he said.
Turkey has resisted external shocks well thanks to its reforms since a 2001 crisis, he said.
"Turkey is much different from what it was in the past. It is still running a primary surplus, inflation has come down and its budget deficit is lower than many west European countries'," he said.