(Adds Arinc, analyst comment, background)
By Gulsen Solaker
ANKARA, June 3 Turkish Prime Minister Tayyip
Erdogan said on Tuesday he hoped the central bank would cut
interest rates further, criticising its stance and raising
further concerns about political interference in monetary
The bank trimmed rates for the first time in a year last
month despite high inflation after calls for a cut from Erdogan,
who is eager to maintain economic growth ahead of an August
presidential election and parliamentary polls in 2015.
Erdogan is widely expected to run in the presidential
election but has yet to announce his candidacy.
Speaking to reporters a day after Central Bank Governor
Erdem Basci defended central bank (CBRT) policy in a bi-annual
presentation to the cabinet, Erdogan said the latest data showed
inflation was not falling.
"I do not find his approach concerning interest rates at all
positive and I do not accept it," Erdogan said, asserting that
high interest rates were the cause of high inflation.
"I hope that new steps are taken immediately and this issue
is resolved," he said.
There was little sign of market reaction to Erdogan's
comments, which were in line with his previous statements, and
the lira was steady at 2.1082 against the dollar.
Timothy Ash, head of emerging markets research at Standard
Bank in London, said markets have so far been tempted to
discount Erdogan's unorthodox views on monetary policy as aimed
at a particular domestic audience.
"But the sheer scale and extent of Erdogan's commentary now
could become a serious concern for the market, if it begins to
force personnel changes at the CBRT itself," he said.
"It surely is testing the patience of central bankers at
the CBRT - they have a difficult enough job fighting inflation,
and figuring out a monetary policy stance, without trying to
second guess the PM," he said.
Data on Tuesday showed Turkish inflation rose less than
expected in May, but the annual increase stayed above the
central bank's forecast for the end of the year, bolstering its
case for keeping monetary policy tight.
Consumer prices rose 0.4 percent month-on-month in May, less
than a Reuters poll forecast for a rise of 0.5 percent, for a
year-on-year increase of 9.66 percent, data from the Turkish
Statistics Institute showed.
The central bank surprised markets last month when it cut
its one-week repo rate, the main rate at which it funds the
market, by 50 basis points to 9.5 percent.
Erdogan said the cut was not enough. Economy Minister Nihat
Zeybekci added to the pressure on the bank on Tuesday by saying
it should cut rates in line with falling market
Deputy Prime Minister Bulent Arinc played down concerns
about political interference after Monday's cabinet meeting,
saying the government believed in an independent central bank
and would not interfere in monetary policy.
The bank raised rates sharply at the end of January to
combat a fall in the lira to record lows, ignoring political
pressure to keep rates down.
In his presentation to the cabinet, Basci said a "temporary
tightening in short-term interest rates" had been an effective
tool with which to fight inflation and that a fast depreciation
in the lira had also been prevented as a result.
Basci said in April he saw room for a gradual lowering in
rates but ruled out a deep cycle of easing. Policy would stay
tight until there was a clear improvement in the inflation
outlook, he said.
(Reporting by Gulsen Solaker; Writing by Daren Butler; Editing
by Janet Lawrence)