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UPDATE 3-Turkish cenbank governor: real interest rates, not nominal, should define monetary policy -Anadolu Agency

(Adds quotes, background, S&P Global comment)

ANKARA, July 15 (Reuters) - Turkey’s new Central Bank governor hinted at rate cuts in his first remarks since taking office nine days ago, state-owned Anadolu Agency reported on Monday, emphasising that the bank had “room for manoeuvre” in its monetary policy.

“Needless to say, to achieve an ever-improving inflation outlook it is crucial to maintain a cautious monetary policy,” Murat Uysal, who was appointed governor after President Tayyip Erdogan ousted his predecessor, told Anadolu.

“But the level of tightness here can be best described through real rates rather than nominal rates.”

Economists expect the bank to cut its benchmark rate by 200 basis points from 24% at its next rate-setting meeting on July 25, after inflation fell in June to a year-low of 15.72%.

Turkey’s benchmark interest rate was hiked to 24% last September to stem a sharp fall in the lira. The Central Bank has left it unchanged since then, as the economy tumbled into recession, to prevent renewed losses in the currency.

Uysal told Anadolu that the bank had sufficient room for a cut in interest rates as he expected disinflation to continue in 2019 on the back of declining cost pressures and weaker domestic demand.

On Sunday, Erdogan said Turkey would make serious cuts to interest rates and that it aimed to reduce inflation to single digits by the end of the year, broadcaster Haberturk reported.

Ratings agency Fitch downgraded Turkey’s sovereign rating to “BB-“ on Friday, saying the dismissal of Central Bank governor Murat Cetinkaya heightened doubt over the authorities’ tolerance for a period of sustained below-trend growth.

Uysal responded to Fitch by saying that growth and price stability supported each other.

“Healthy and inclusive growth strengthens the sustainability of price stability, and price stability supports growth by reducing uncertainty and lowering interest rates,” he said.

While Fitch cited the removal of Uysal’s predecessor as the primary reason for its downgrading decision, focus is shifting to possible U.S. sanctions in response to Turkey’s decision to buy a Russian-made missile defence system, the S400.

Ratings agency S&P Global said on Monday Turkey’s rating was only likely to be affected by the sanctions if they specifically targeted Turkish banks. S&P’s main Turkey sovereign analyst, Maxim Rybnikov, said much would depend on what those sanctions entailed.

The firing of Cetinkaya by Erdogan raised concerns regarding the Central Bank’s independence.

“We should make a distinction between target and tool policy. The Central Bank is independent in its use of tools and methods to carry out the mission given to it,” Uysal said.

He added that he plans to increase corporate transparency and strengthen the Central Bank’s policy communication.

“We will also be sharing more concrete information on a more frequent basis through various media regarding the Central Bank’s approach to monetary policy and general issues,” he told Anadolu.

Uysal said the bank would still maintain its “intention to increase international reserves as an insurance against external shocks provided that the necessary conditions are fulfilled.” (Additional reporting by Ali Kucukgocmen and Marc Jones Writing by Ece Toksabay and Sarah Dadouch Editing by Dominic Evans and Mark Heinrich)

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