UPDATE 1-Fitch cuts Turkey growth forecasts for 2014, 2015

Fri Apr 4, 2014 2:23am EDT

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ISTANBUL, April 4 (Reuters) - Ratings agency Fitch cut its growth forecasts for Turkey on Friday, citing slower domestic lending growth and signs that consumer and investor confidence are moderating.

It now sees the economy expanding by 2.5 percent in 2014, compared with a previous estimate of 3.2 percent, and by 3.2 percent rather than 3.8 percent next year.

Turkey targets medium-term economic growth of 5 percent, which the central bank has said it expects to achieve by mid-2015 after shortfalls in 2012 and 2013.

On Friday, Fitch also affirmed Turkey's credit rating at BBB- with a stable outlook, at the bottom of its investment-grade category.

A clear win in local elections on Sunday for the ruling AK Party has helped relieve political uncertainty after a bitter campaign, although Prime Minister Tayyip Erdogan's vow to punish those responsible for damaging leaks could stoke tensions again.

Fitch said it expected political noise to remain an enduring feature of Turkey ahead of presidential elections in August and parliamentary elections in June 2015, periodically clouding the economic outlook.

Fitch said Turkey's economy remained highly volatile, and expected the coherence and predictability of its macroeconomic policy to be weaker than in some emerging market peers.

"A material and durable reduction in the current account deficit, coupled with a rebalancing of net capital inflows towards longer-term instruments and a sustained increase in international reserves" could lead to positive rating action, Fitch said.

A track record of lower and more stable inflation would also help the country's rating, it added.

Turkey's central bank said on Thursday 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.

Data announced on Thursday showed monthly inflation at 1.13 percent last month, exceeding a Reuters poll forecast of 0.88 percent. This followed a rise of 0.43 percent in February. (Reporting by Ece Toksabay; Editing by Catherine Evans)

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