Turkey’s central bank promises action after inflation surges to 18%

The comments from Turkey’s central bank underscore the volatile outlook for prices amid a currency crisis. (Reuters)
Updated 03 September 2018
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Turkey’s central bank promises action after inflation surges to 18%

  • The lira has lost 40 percent of its value against the dollar this year
  • President Recep Tayyip Erdogan wants to see lower borrowing costs

ANKARA: Turkey’s central bank said it would adjust its monetary stance given “significant risks” to price stability, a rare move to calm financial markets after inflation surged to its highest in nearly a decade and a half on Monday. The comments from the central bank underscore the volatile outlook for prices amid a currency crisis. The lira has lost 40 percent of its value against the dollar this year, driving up the cost of goods from potatoes to petrol and sparking alarm about the impact on the wider economy and the banking system.
Inflation jumped 17.9 percent year-on-year in August, official data showed, outstripping market expectations and marking its highest level since late 2003.
“Recent developments regarding the inflation outlook indicate significant risks to price stability. The central bank will take the necessary actions to support price stability,” the bank said in a statement.
“(The) monetary stance will be adjusted at the September monetary policy committee meeting in view of the latest developments.”
For investors, the main question has been whether the central bank will be able to sufficiently hike interest rates at its next policy-setting meeting on Sept. 13 to tame inflation. It left rates on hold at its last meeting in July, confounding expectations and sending the lira sharply weaker.
President Recep Tayyip Erdogan, a self-described “enemy of interest rates,” wants to see lower borrowing costs to keep credit-fueled growth on track. Investors, who fear the economy is set for a hard landing, want big rate hikes.
Finance Minister Berat Albayrak told Reuters in an interview on Sunday that the bank was independent of the government and would take all necessary steps to combat inflation. He also promised a “full-fledged fight” against inflation.
By signalling that it was ready to take action, the central bank may now have inadvertently set financial markets up for disappointment if it doesn’t deliver a hefty increase, said Piotr Matys, an emerging markets forex strategist at Rabobank.
“A proper rate hike is required and by making a pledge to raise interest rates, the central bank may have raised the bar for itself to exceed expectations on Sept. 13,” Matys said. “The central bank basically has no room to disappoint.”
The lira briefly recovered some losses immediately after the central bank’s announcement. By 0852 GMT it was more than 1 percent weaker on the day at 6.6200 to the dollar.
The bank is likely to deliver a rate hike of 2 percentage points on Sept. 13, far short of the 7-10 percentage points that investors would like to see, said Jason Tuvey of Capital Economics in a note to clients.
Such increases are needed “to bring real interest rates back to positive territory and reassure the markets that policymakers are willing and able to tackle high inflation,” he said.


China’s Xiaomi swings to net profit in Q3 on robust sales in India, Europe

Updated 19 November 2018
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China’s Xiaomi swings to net profit in Q3 on robust sales in India, Europe

  • Profit for the three months through September reached $357.23 million
  • The firm has been adding new brands to its smartphone portfolio to target niche consumers

HONG KONG: Chinese smartphone maker Xiaomi Inc. said on Monday it swung to a net profit in the third quarter, beating analyst estimates, driven by robust sales in India and Europe.
Profit for the three months through September reached 2.48 billion yuan ($357.23 million), versus an 11 billion yuan loss in the same period a year earlier. That compared with a 1.92 billion yuan average of five analyst estimates compiled by Refinitiv Eikon.
Xiaomi also said operating profit sank 38.4 percent to 3.59 billion yuan in the third quarter. Revenue rose 49.1 percent to 50.85 billion yuan.
The mixed results come amid a slowdown in smartphone purchases both in China, where Xiaomi once was the top-selling handset brand, and overseas.
Nevertheless Xiaomi, along with fellow low-cost handset makers Oppo and Vivo, accounted for around a quarter of the global smartphone market in the first half of 2018, showed data from researcher IDC.
Xiaomi’s fastest-growing markets are India, where it has had success with its budget Redmi phone series, and Europe, where it entered in 2017 with launches in Russia and Spain. Earlier this month it released its flagship Mi 8 Pro device in Britain.
But to weather the global market slowdown, analysts said Xiaomi needs to expand to new markets and also sell more higher-priced devices with wider profit margins.
The firm has been adding new brands to its smartphone portfolio to target niche consumers. Concurrent with today’s earnings, it announced a partnership with Meitu Inc, a maker of a photo app popular with young women, to sell phones under its brand. Earlier this year it launched Black Shark, a phone targeted at gamers, and Poco, a value-for-money device aimed at India.
Mo Jia, who tracks China’s smartphone makers at research firm Canalys, said attempts to sell more expensive devices requires changing its brand perception.
“It’s still very hard for Xiaomi to change its perception of being a low-end device manufacturer as the majority of its smartphone shipments are the Redmi series.”
Xiaomi also aims to transform itself from a smartphone firm into a software company. As the firm prepared for its IPO, founder Lei Jun touted Internet services — namely advertisements placed on the firm’s in-house apps — as its future and key differentiator from other handset brands.
In the third quarter, Xiaomi’s smartphone division grew revenue by 36.1 percent while its Internet service division grew 85.5 percent. But phones made up 64.6 percent of total sales, while Internet services made up 9.3 percent.
The results are the second set released by Xiaomi since the smartphone maker raised $4.72 billion in an initial public offering (IPO) in June, valuing the firm at about $54 billion — around half of some earlier industry estimates of $100 billion.
Its shares have fallen roughly 20 percent since they started trading in July amid a broader Chinese stock market sell-off and concern about a slowdown in China’s tech industry.