(Updates, adds background, more quotes)
By Carolyn Cohn
LONDON May 29 Turkish finance minister Mehmet
Simsek sought to reassure investors on Thursday of the central
bank's independence, although he said the bank was possibly
"behind the curve" with its monetary policy.
The government, especially Prime Minister Tayyip Erdogan,
has been highly critical of the central bank for its huge
lira-defensive interest rate rise earlier this year. The bank
this month eased one of its policy rates despite annual
inflation of over 9 percent, a move many investors fear was
caused by government pressure.
Erdogan's recent comment that the rate reduction was
insufficient further boosted fears about central bank
But Simsek told a conference organised by the Financial
Times in London: "The central bank is independent. They can be
very aggressive, maybe behind the curve but that's not for me to
comment ... We have appointed qualified people".
The central bank was doing a "pretty decent job", he said,
adding: "You can have your own assessment of what policy has
been and what it should be, (but it) doesn't mean it hasn't
Erdogan is keen to ensure the economy, once growing at a
turbo-charged 8 percent, does not slow too much ahead of August
presidential elections. The economy expanded 4 percent last year
and the government is targeting this level in 2014 too.
While analysts polled by Reuters and international
organisations predict Turkish growth to slow to 2.0-2.5 percent
this year, Simsek said the government believed 4 percent was
"achievable" and there could even be some upside.
But he acknowledged downside risks, too, saying these "are
mainly associated with geopolitical risks."
He did not elaborate on these risks but flaring violence in
Ukraine or continued unrest in Egypt and Syria could weigh on
emerging economies in the region. Turkey too has seen several
rounds of protests against Erdogan's rule though his AK Party
remains broadly popular.
Despite the growth worries the central bank has said it
would stick to a tight policy until inflation was clearly on the
decline. Inflation rose to a higher-than-expected 9.38 percent
year-on-year in April.
Turkey is seen as more vulnerable to the ebb and flow of
global capital than most emerging markets because of its wide
current account deficit. That gap narrowed by a third in the
first three months of 2014 compared to year-ago levels but was
still $11.46 billion for the quarter.
Simsek admitted that inflation was "unacceptably high" and
the deficit "unsustainable". But he predicted inflation would
peak in May. The government planned to bring the deficit to 5
percent of gross domestic product from 7 percent at present, the
He did not give a time frame.
"The pick-up in inflation is temporary," he said. "Reducing
inflation to low single-digits needs to be our number 1
priority...we need to reduce it to just under 5 percent".
High growth rates were not an immediate priority, Simsek
hinted, adding: "We are willing to live with more moderate
growth until we can get all these structural reforms (done)".
(Writing by Sujata Rao; Editing by Ruth Pitchford)