* Erdogan says central bank should cut interest rates
* Assets rallied after election gave Erdogan's party clear
* Investors fear govt interference in central bank policy
* Central bank said rates appropriate to tackle inflation
By Alexandra Hudson and Seda Sezer
ISTANBUL, April 4 Turkey's lira weakened on
Friday after Prime Minister Tayyip Erdogan said the central bank
should cut interest rates, a day after the bank's governor had
said fighting inflation remained a priority and rates at
existing levels would do the job.
Investors have long feared the government exerting pressure
on the central bank to keep rates artificially low as it moves
into an election cycle, and have warned how detrimental this
would be to Turkey's struggle against inflation and external
Speaking five days after nationwide local elections in
Turkey gave his party a clear victory, Erdogan told reporters:
"As soon as the local election results were announced, markets
started to react positively. The stock exchange climbed above
70,000. Yields are falling."
"In line with this, the central bank will probably convene
an extraordinary Monetary Policy Committee meeting, and this
time it should lower interest rates."
The bank was forced to make a massive rate hike in an
emergency meeting in January, to stabilise the lira after it had
plunged to record lows. Many analysts said this move came too
late as a result of government pressure - denting the bank's
By 0720 the lira traded at 2.1433 to the dollar,
slipping from 2.1350 beforehand.
Analyst Tim Ash at Standard Bank said of Erdogan's remarks,
"suffice to say very negative and disruptive comments -
politicians should steer clear of making such specific comments
over monetary policy in countries which are supposed to operate
with independent central banks".
Turkey's central bank said on Thursday its 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
Istanbul's stock exchange traded flat on Friday at
71,613 points, outperforming the MSCI index of emerging markets
which eased 0.24 percent.
The yield on the two-year benchmark bond
rose to 10.69 percent from a previous close of 10.65 percent,
while the yield on the benchmark 10-year bond
rose to 10.45 percent from a previous close of 10.36 percent.
Earlier on Friday ratings agency Fitch cut its growth
forecasts for Turkey, 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.
Fitch said it expected political noise to remain an enduring
feature ahead of presidential elections in August and
parliamentary elections in June 2015, periodically clouding the
(Editing by Louise Ireland)