* Finance Minister says taxation an option
* Brazil-style 'Tobin' tax not viewed favourably by govt
* More monetary measures expected first
* Could build forex reserves to between $100-150 billion
(Adds fresh quotes, analysts comments, background)
By Simon Cameron-Moore and Orhan Coskun
ISTANBUL, Dec 3 Turkey should discuss
contingencies, including taxation, to curb portfolio inflows
fuelling runaway asset prices, but no evaluations had taken
place yet, Finance Minister Mehmet Simsek said on Friday.
Governments in Brazil, South Africa, Thailand and other
emerging markets have directly or indirectly intervened in
recent months to keep their currencies from strengthening.
Turkey had no plans at present to rein in such "hot money"
inflows, but policymakers had options to review, Simsek told
broadcaster CNBC-e in an interview.
"The government should discuss 'hot money.' As a principle,
I am someone who believes we can't just be observers to
portfolio inflows at this time," Simsek said.
"I believe that other measures can be taken, other measures
including tax.... These can always be evaluated. But this is not
the case now," he said.
Investors have poured money into Turkish stocks, bonds and
the lira this year, seeking higher-yielding markets after
developed economies slashed interest rates.
"Steps will not be allowed which shock investors and cause
them to flee Turkey," a senior member of the ruling AK Party
with knowledge of economic policy told Reuters.
"The entry of long-term capital into the country is
something which we clearly prefer."
So far, Turkey has used monetary levers to stop foreign
speculators overheating its markets and making the lira currency
become too strong.
"In Emerging Europe only Turkey and Poland really have to
worry about this," said David Oxley, emerging markets economist
at Capital Economics in London.
With inflation falling there was little prospect for a hike
in the main central bank policy rate through 2011, he said.
Analysts, expect Turkish policymakers to curb credit growth
instead through further increases in the reserve requirements --
already back to levels seen before the global financial crisis
struck in late 2008.
Analysts also foresaw further reductions in the overnight
borrowing rate to dampen speculation on the lira appreciating,
as the bulk of foreign money is parked in the money market.
The central bank, on Nov. 11, left its policy rate, the one
week repo rate, unchanged but slashed its overnight borrowing
rate by 400 points to encourage investors to hold lira deposits
The central bank also has stepped up purchases of foreign
exchange at weekly auctions, and Prime Minister Tayyip Erdogan
has said Turkey needs to build up its forex reserves.
The AK Party official said reserves should be raised to a
level of around $100-150 billion. As of Nov. 26 they stood just
below $80 billion.
Simon Quijano-Evans, analyst at C.A. Chevreux in Vienna, saw
the central bank and government working well together to cool
"First of all they will try to manage expectations, and
looking at equity prices and bond yield movements over the last
couple of weeks they've done that and it has worked," he said.
Economy Minister Ali Babacan earlier this year expressed
skepticism over the merits of Brazil's "Tobin" tax. The Latin
American giant has imposed levies on foreigners' purchases of
local bonds and stocks.
A senior official in the ruling AK Party told Reuters that
this option was not viewed positively, so the tax weapon appears
unlikely to be used unless other methods fail.
"Is it likely? It all depends on the continued flows,"
Quijano-Evans, said. "It's obviously a possibility."
The imposition of a withholding tax had caused the Turkish
bond market to dry up a few years ago, and that experience will
probably make policymakers reluctant to go that route, though
Turkey is in better shape now.
Turkey notched 11 percent growth year on year in the first
half of 2010, making it one of the fastest growing economies
globally, and the share market has boomed.
While the lira is little changed against the dollar since
the start of the year, Turkey's main trading partner is Europe,
and the lira has appreciated 10 percent against the euro,
raising complaints from exporters.
The main benchmark Istanbul index .XU100, which is 70
percent foreign owned, has gained 26.7 percent since the start
of the year compared with a 12.6 percent increase in the MSCI
benchmark index of emerging stocks .MSCIEF.
Simsek also said the government's 2010 budget deficit may be
below 44 billion lira ($29.6 billion), a trend that could bode
well for Turkey's chances of getting a credit rating upgrade for
its sovereign debt [ID:nLDE6A41BN]. The government has
previously said it targets an end-year deficit of 44.2 billion
(Additional reporting by Ayla Jean Yackley; editing by Stephen
Nisbet and Toby Chopra)