UPDATE 2-Turkish raises inflation targets for coming years

(Recasts, adds analyst comments)

By Selcuk Gokoluk

ANKARA, June 3 (Reuters) - Turkey raised its inflation targets for the next three years on Tuesday after data showed consumer inflation jumped into double digits for the first time in more than a year in May.

The central bank proposed raising next year's end-year inflation target to 7.5 percent from the current 4 percent, in a letter posted on its website, and the government said it accepted the proposals.

Amid rising inflation at home and pressure on food and oil prices globally, the central bank also proposed a target of 6.5 percent for the end of 2010, and 5.5 percent for 2011.

The bank said, however, that it would allow inflation to come below target levels if food and energy prices and global conditions were better than expected.

"Revising inflation targets by taking into account existing shocks will contribute to economic units take the targets as reference again," the bank said.

The bank said that the economic units had started to look at past inflation data rather than targets in their pricing behaviour.

"Upward revision of inflation targets does not mean that the central bank will follow a looser policy," the central bank said.

APPROPRIATE TARGETS

Economy Minister Mehmet Simsek wrote in a public letter to Central Bank Governor Durmus Yilmaz that the government considered the proposed targets "appropriate," and vowed to support the independent institution in its fight against inflation.

"The government pledges to support the central bank measures through fiscal discipline, structural reforms and cautious regulation in banking," he said in the letter, which was posted on the Treasury's website.

"The government will determine its revenue policy conducive to the new inflation targets," Simsek said.

The central bank proposed no change to this year's 4 percent target, which economists say it will miss, as it did last year. Data showed on Tuesday that consumer inflation jumped into double digits for the first time in more than a year in May, to an annual 10.74 percent.

The bank had said previously it would not change this year's target, for reasons of accountability, but that it would look at the following targets towards the end of this year.

"It obviously dents the credibility of the monetary policy. Obviously the question is that why inflation target was so tight in the first place with the backing of the International Monetary Fund," said UniCredit MIB economist Simon Quijano-Evans.

Other central banks in eastern Europe might revise their inflation targets, potentially Romania as the next possible country, he said. (Writing by Emma Ross-Thomas, Editing by Chizu Nomiyama)