ISTANBUL: Turkey's central bank is shifting its focus back to taming inflation and says the government may miss its economic growth target of 4 percent this year, economists at a closed door meeting with the bank said on Thursday.
The bank refrained from saying whether or not it would cut interest rates further in the coming period, the economists said, although it reiterated it would keep monetary policy tight until the inflation outlook improves.
The bank unexpectedly lowered its overnight lending rate on Wednesday, in a move initially seen as having little impact and meant more as a signal to a government keen for rate cuts that it is supporting the economy.
It had already cut its main one-week repo rate by 175 basis points in the three months prior to its latest decision, fuelling criticism that it was caving in to government pressure despite persistently high inflation.
Former prime minister Tayyip Erdogan, who was sworn in as president on Thursday, has been calling for sharper cuts since interest rates were hiked sharply in January to defend a then-tumbling lira currency.
"Our take from today's meeting is the bank is more concerned and worried about inflation," said Is Investment economist Muammer Komurcuoglu in a note to clients.
Inflation data for July showed consumer prices were rising 9.32 percent annually, well above the government's year-end target of 5 percent. The central bank's own forecast for 2014 inflation is 7.6 percent and it has so far largely blamed food prices for a persistent rise in prices.
But five economists said the bank suggested in the meeting that food prices were not the only driver and that it did not want to use food prices "as an excuse".
The bank does not make the question and answer sessions with economists public, but in a presentation published on its website on Thursday said it would keep policy tight until there is a significant improvement in the inflation outlook.
CHANGING RHETORIC
The bank said that survey indicators pointed to a deceleration in economic activity, possibly due to "geopolitical risks", above a graph of deteriorating manufacturing PMI, which fell to its lowest since April 2009 in July.
However analysts cited slowing domestic demand due to the central bank's doubling of interest rates in January and loan-curbing regulations as among the biggest factors behind deteriorating growth outlook.
"They only mention geopolitical risk because talking about the impact of political tensions at home or interest rate action could invite more government pressure on the bank," one strategist said on condition of anonymity.
Having firmed on Wednesday on relief that the main one-week repo rate was kept at 8.25 percent, the lira slipped to 2.1647 against the dollar by 1423 GMT on Thursday from 2.1545 late on Wednesday.
Istanbul's main share index closed up 0.46 percent at 80,837.71 points, outperforming a 0.61 percent fall in the broader emerging markets index.
The benchmark 10-year government bond yield rose to 9.19 percent from 9.14 percent on Wednesday.
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