January 25, 2018 / 9:49 AM / 3 months ago

INTERVIEW-Turkey central bank aims to rein in inflation in 2018 - governor

* Governor says to take all steps to lower inflation quickly

* Says coordination of monetary, fiscal policy increasing

* Policy to remain tight until inflation outlook improvement

* President Erdogan seeks lower rates to boost growth (Adds quotes from governor, context)

By Nevzat Devranoglu

ANKARA, Jan 25 (Reuters) - The Turkish central bank’s main goal this year is to increase the effectiveness of its monetary policy and rein in double-digit inflation, Governor Murat Cetinkaya told Reuters in an interview.

Cetinkaya, speaking by telephone from the World Economic Forum in the Swiss resort of Davos, also said the bank would take all necessary monetary policy steps to bring inflation down to single digits as swiftly as possible.

Turkey’s annual inflation stood at 11.92 percent at the end of 2017, far above the bank’s official target of 5 percent. At its most recent policy-setting meeting, the bank this month left its top rate steady at 12.75 percent, in line with expectations.

“Our fundamental goal is to increase the effectiveness of monetary policy and accelerate the disinflation process,” Cetinkaya said when asked about his priorities for 2018.

“I want to emphasise again that we will maintain a tight monetary policy decisively until the inflation outlook displays a significant improvement, independent of base effects and temporary factors, and becomes consistent with the targets.”

“Our goal is to lower inflation to single digits in the shortest time and then to bring it towards targets. To achieve this, all the necessary monetary policy steps will be taken decisively,” he said.

INVESTORS SCEPTICAL

But investors have been sceptical about the bank’s ability to bring down inflation, given that it faces the challenging task of balancing volatile prices with President Tayyip Erdogan’s demands for cheaper credit.

Erdogan, who has described himself as an “enemy” of interest rates, has repeatedly called for lower rates to fuel bank lending and boost the economy.

Cetinkaya said the government’s fiscal policy was supportive of the bank’s efforts to fight inflation.

“Reflecting the coordination of monetary-fiscal policy, we see an increase in the support which public finance is giving in the fight against inflation. There are joint efforts towards making this coordination permanent and systematic,” he said.

Erdogan’s comments, and the bank’s reluctance to use traditional policy tools to tighten - it uses a complex system of multiple rates - have reinforced investor concern that the central bank is less than independent, and this has weighed on the lira currency.

“Monetary policy has persistently proven unable to bring inflation near to target and a complex policy framework undermines transmission mechanisms,” ratings agency Fitch said last week.

Turkey’s economy has rebounded strongly from a downturn that followed a 2016 coup attempt. Helped by a series of government stimulus measures, it grew by 11.1 percent year-on-year in the third quarter, its fastest expansion in six years. (Reporting by Nevzat Devranoglu; Writing by Daren Butler; Editing by David Dolan and Gareth Jones)

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