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Turkish CPI exceeds forecast, adding to rate hike pressure

Turkish consumer prices rose a greater-than-expected 0.67 percent in November as clothes and food prices jumped, official data showed on Thursday, adding pressure on the central bank to raise interest rates. The bank kept rates on hold last week at its first meeting since a November 1 election, waiting for an expected tightening by the US Federal Reserve before following suit.

Monthly consumer price inflation exceeded a forecast of a 0.46 percent rise in a Reuters poll and a year-on-year rise of 8.10 percent, the Turkish Statistics Institute said, sharply above a central bank target of 5 percent. Consumer price inflation was driven by a higher-than-expected 5.37 percent rise in clothing and footwear prices and a 1.0 percent rise in prices of food and non-alcoholic drinks, the data showed.

Is Investment economist Muammer Komurcuoglu said Thursday's figures created upside risks for the bank's year-end inflation forecast of 8.4 percent. "The inflation surprise and the continuing upward trend in core indicators will create extra pressure on the central bank (TCMB) for a rate hike," he said. Annual core inflation rose to 9.22 percent year-on-year in November, a 2015 peak and up from 8.92 percent in October, driven in part by sharp falls in the lira.

"But the TCMB's first rate hike is tied to the Fed. Hence, if the Fed makes its first hike in December, we think the TCMB will raise its policy rate by between 25-50 basis points at its last meeting of the year," he added. The Turkish central bank's monetary policy committee meeting is on December 22. The inflation data had little impact on financial markets. The lira gained to 2.8840 against the dollar from 2.8900 late on Wednesday as attention focused on potential moves from the Fed and the European Central Bank.

The main share index edged up 0.37 percent. The benchmark 10-year government bond yield was at 10.1 percent, up from 10.06 percent at the end of spot trade on Wednesday. Thursday's data also showed domestic producer prices fell 1.42 percent on the month, for an annual rise of 5.25 percent.

Copyright Reuters, 2015