Top Stories
Top Stories

UPDATE 2-Turkey's cenbank says it can tighten policy if needed, plays down reserve concerns

Ezgi Erkoyun and Ali Kucukgocmen

reserve concerns@ (Recasts with quotes, details, background)

ISTANBUL, April 30 (Reuters) - Turkish Central Bank Governor Murat Cetinkaya said on Tuesday the bank can tighten monetary policy if inflation risks materialise and he played down concerns about declines in the bank's forex reserves.

He also said the bank was leaving its inflation forecasts unchanged at 14.6 percent for end-2019 and 8.2 percent next year as he presented the bank's quarterly inflation report, pledging to use all tools available to boost confidence in the lira.

"The lack of change in our forecasts in this report should be read as meaning that monetary tightness will be provided and maintained so that the inflation fall is in line with targets," he said.

Last week, the central bank left its key interest rate unchanged at 24 percent as expected but dropped a previous reference to possible further tightening if needed to address inflation, a dovish shift that hit the lira.

Cetinkaya talked down the significance of the change in the statement's wording, saying it "reflected a structural approach more than a short-term signal of direction."

"If upward risks materialise, additional tightening can be provided the moment that the monetary policy committee sees a need on this issue," he said.

Investors are increasingly concerned about inflation, which peaked at a 15-year high above 25 percent in October as Turkey weathered a currency crisis that wiped nearly 30 percent off the lira's value last year. In March, Turkey's annual consumer price inflation rose to 19.71 percent.

The lira has weakened another 12 percent this year due to strained U.S. diplomatic ties, challenges by President Tayyip Erdogan's AK Party to election results in Istanbul, and a drawdown in reserves that could leave the central bank with little room to cushion another crisis.

The lira weakened as far as 5.9850 against the dollar during the presentation, its weakest since Oct. 12, but it rebounded partially to 5.9670 afterwards as the market weighed up Cetinkaya's comments.

Recent fluctuations in the bank's forex reserves were not abnormal, the governor said adding that it was important to look at medium term trends when looking at reserve levels and there was no deterioration in any parameter of reserve effectiveness.

Turkey's central bank ramped up its use of swaps to boost overall reserves last month, bank data showed last week and Cetinkaya said the bank knew the impact of swap transactions on reserves, and that the increase in swap transactions was carried out to support the market in the face of a market anomaly.

Cetinkaya said the bank would decisively use all tools available to bring down inflation in line with targets, forecasting inflation would fall to single digits in the second quarter of 2020. (Additional reporting by Jonathan Spicer and Sarah Dadouch; Writing by Daren Butler Editing by Dominic Evans and Angus MacSwan)