The Turkish Central Bank may start raising its benchmark borrowing rate in May next year, Morgan Stanley said, revising its earlier forecast of increases starting in the first quarter of 2011.

The Bank in Ankara is likely to add a total of 1.5 percentage points to the main one-week repo rate, taking it to 8.5 percent by the end of 2011, Tevfik Aksoy, chief economist for Turkey, the Middle East and north Africa in London, said in an e-mailed report. Morgan Stanley had previously predicted 2.5 percentage points in increases.

The revised forecast reflects an expected slowdown in inflation toward the end of this year, in addition to a "weak picture on the labor front and soft external demand," Aksoy said. It also takes into account Morgan Stanley predictions that major central banks will not start increasing their rates until the middle of 2011.

The Turkish Central Bank has kept the main rate unchanged at 7 percent for nine months and last met to decide monetary policy on Aug. 19.

The Bank's goal for the end of this year is inflation of 6.5 percent. It next meets to decide rates on Sept. 16.

In a statement, the Central Bank said food prices drove an acceleration in inflation in August. The increase in the consumer price inflation rate to 8.3 percent from 7.6 percent was in line with the Bank's earlier forecasts, the Bank said in a statement. Service price inflation continued to slow and core inflation measures, which exclude food prices, were in line with the Bank's medium-term goals, the report said.