UPDATE 4-Turkish central bank says policy will curb high inflation

* March CPI up 1.13 pct versus 0.88 pct forecast

* Bond yields rise after data, lira flat

* Data bolsters case to keep interest rates high for longer

* C.bank says will inflation should fall to 5 pct target by mid-2015

(Adds details from Basci speech in London)

ANKARA/LONDON April 3 (Reuters) - Turkey's central bank said its current tight monetary policy was sufficient to tackle inflation, even though consumer prices rose more than expected in March, and inflation would start to ease from June to approach its 5 percent target by mid-2015.

Citing inflation alongside external balances as Turkey's biggest economic headaches, bank governor Erdem Basci said in London that consumer credit growth continued to slow and the current account deficit would show significant improvement.

He also said that first quarter growth was slightly below 4 percent, reassuring markets concerned that the bank's massive interest rate hike in January, made to stabilise a plunging lira, might suffocate growth.

Rising food prices drove monthly inflation up to 1.13 percent last month, official data showed on Thursday, exceeding a Reuters poll forecast of 0.88 percent. This followed a rise of 0.43 percent in February.

On an annual basis prices rose by 8.39 percent, compared to the central bank's year end aim of 5 percent.

The bank has targeted this level since 2012, but failed to meet it both then and in 2013, when year-end inflation stood at 6.2 and 7.4 percent respectively. It last met its inflation target in 2010.

"Inflation expectations are contained despite the rise in headline numbers. Commodity prices are not putting upside pressure on inflation, it is the weakening of the lira and that should last until June... inflation should peak by May," Basci told reporters.

"It is quite likely inflation is going to approach 5 percent by mid-2015," he added.

The central bank launched massive emergency rate hikes in January after political tensions and a corruption scandal swirling around Prime Minister Tayyip Erdogan's government exacerbated a sell off of Turkish assets following the withdrawal of U.S. stimulus.

It raised its overnight lending rate to 12 percent from 7.75 percent, its one-week repo rate to 10 percent from 4.5 percent, and its overnight borrowing rate to 8 percent from 3.5 percent.

It made the moves despite heavy government pressure to keep rates low as the country entered an election cycle, and has kept them there since.

After the inflation data lira short-term bond yields rose as bankers said high inflation may lead the central bank to tighten liquidity through its various mechanisms. The yield on the two-year benchmark bond rose 17 basis points to 10.69 percent. By 1315 GMT it stood at 10.75 percent.

Turkish assets rose at the start of the week, boosted by a clear win for Erdogan's AK party in local polls last Sunday. Analysts said the result would restore some calm after an intense and bitter campaign, although Erdogan's vow to punish those responsible for a series of damaging leaks could stoke tensions again.


The bank is battling to control inflation, worsened by weakness in the lira early this year, and after losses of 17 percent against the dollar in 2013. Yet it is also wary of further tightening for fear of hitting growth.

The bank said after its last monetary policy meeting that it would maintain its tight monetary policy stance until there is a significant improvement in the inflation outlook.

The lira has now recovered the losses recorded in 2014 following the Sunday's polls, which were considered a referendum on Erdogan's rule.

"At least local elections are out of the way, but let's hope the central bank does not come under undue political pressure to reloosen too early, ahead of the presidential elections in August," analyst Timothy Ash at Standard Bank said in a note.

(Reporting by Ece Toksabay, Nevzat Devranoglu, Dasha Afanasieva in Istanbul, Carolyn Cohn in London; Writing by Alexandra Hudson; Editing by Toby Chopra and Susan Fenton)