Turkey's central bank raises inflation target

Turkey's central bank has revised its year-end inflation target upwards to 7.6 percent from a previous forecast of 6.6 percent, its governor announced on Wednesday. Erdem Basci also said that the bank might lower the interest rates. "The next step could be a moderate and gradual decline in interest rates," he told a news conference. "But while doing this we will maintain the tight monetary policy," he added. "We could take steps to ensure that short-term interest rates are kept relatively higher than long-term interest rates". Last week, the bank withstood pressure from Prime Minister Recep Tayyip Erdogan's government and kept its key interest rates unchanged. Erdogan said this month after his Islamic-rooted party scored a sweeping win in the March 30 local polls that the central bank, statutorily independent, should cut interest rates in order to stimulate the economy after it dramatically raised key rates in January. That hike came amid domestic troubles surrounding Erdogan's government sparked by a wide-ranging corruption scandal implicating the prime minister and his family, months after mass anti-government protests-- which Erdogan blamed on an "interest rate lobby" referring to pressure from certain quarters for a rise in interest rates. Economy Minister Nihat Zeybekci brushed off concerns over high inflation. Inflation rates are "not that important for the economy," he told local media. "What matters is high interest rates. We expect interest rates to reach a point as soon as possible which encourages investment and production".   On Wednesday, Basci defended the central bank's policy. "We have seen deterioration in inflation because of internal and external shocks," he said. "If no policy measures had been taken, the deterioration would have continued rapidly. Long term interests were going to rise. The central bank had to take measures," he said. The governor also said Turkey's tight monetary policy would be maintained until an improvement in the inflation outlook. Turkey's economy grew by 4.0 percent last year, and analysts warn of a slowdown after months of turmoil and ahead of presidential elections in August, in which Erdogan appears to be a strong candidate. Turkey's economy is also vulnerable to uncertainties in the global financial realm. Emerging economy currencies including the lira have also taken a beating due in part to the US Federal Reserve's decision to reduce stimulus measures.