Turkey's inflation rate probably fell close to a 39-year-low in July, strengthening the case for further cuts to the benchmark interest rate, a survey showed.
Inflation eased to 5.4 percent from 5.7 percent in June, according to the median estimate of 15 economists surveyed by Bloomberg. The statistics agency will announce the data at 5 p.m. in Ankara today. The rate was 5.2 percent in May, the lowest since July 1970.
Central bank Governor Durmus Yilmaz has already slashed 8.5 percentage points from the benchmark rate in nine months, taking it to a record 8.25 percent. Yilmaz said on July 29 that more cuts are likely as there's no clear sign of a recovery from the deepest economic contraction on record. The economy shrank 13.8 percent in the first quarter.
"The only pressure on inflation comes from tax rises, otherwise demand remains very weak," said Levent Durusoy, chief economist for Yatirim Finansman Securities in Istanbul, who says the benchmark rate may reach 7 percent by October. "How long it will stay there is unclear. I'm not sure I share the bank's confidence that there's nothing frightening ahead for inflation."
The government on July 15 announced higher taxes on fuel, tobacco and restaurant meals as it seeks to limit a widening budget deficit. Those increases will be balanced by declining demand for housing and services, the bank said on July 28, adding that the main direction for inflation is toward "historic lows."
Inflation in Istanbul, the country's biggest city, accelerated in July to 9 percent from 5.7 percent a month earlier, the city's chamber of commerce said yesterday.
The bank next meets to set interest rates on Aug. 16.
The benchmark ISE National 100 Index rose 8.2 percent to 42,641.26 last week. The lira was little changed on the week, trading at 1.4782 to the dollar late on July 31, while the yield on the benchmark government bond tracked by ABN Amro fell to 10.69 percent from 11.47 percent.
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