Istanbul industry group says Turkey's central bank straying from price stability

·2 min read

ISTANBUL, Oct 27 (Reuters) - Turkey's central bank is straying from its core goal of ensuring price stability and in turn putting financial stability at risk, the head of the country's largest chamber of industry said on Wednesday.

Last week, the bank shocked markets by cutting its policy rate by 200 basis points to 16%, delivering easing long demanded by President Tayyip Erdogan, in a move that economists and the opposition called reckless as inflation neared 20%.

Erdogan, a self-described enemy of interest rates, has long demanded monetary stimulus to boost credit, exports and jobs and has sacked the last three central bank governors in less than 2-1/2 years, eroding the bank's credibility and sending foreign investors fleeing.

"Our Central Bank has strayed from its core target of price stability and put financial risk," Istanbul Chamber of Industry (ISO) chairman Erdal Bahcivan said. "While we all want interest rates to fall, pricing is being realised in free market conditions."

"As long as we don't remove uncertainty, and boost trust and predictability, the positive effects of low interest rates will be short-lived, and financial stability risks in the medium-term will increase," he added.

Increased exports stemming from the erosion of the Turkish lira would not deliver long-term success, Bahvican said.

The lira has lost over 21% of its value so far this year in a selloff that accelerated after the central bank's rate cut. The currency rallied from a new record low against the U.S. dollar this week after Turkey and the West stepped back from the brink of diplomatic crisis.

Bahcivan also said that disregarding inflation for the sake of economic growth would not benefit Turkey and that this should "never be accepted", adding an inflationary growth structure would not be sustainable.

At least six economists told Reuters they calculate that annual inflation will climb above 20% in October, from 19.58% last month. (Reporting by Ceyda Caglayan; Writing by Tuvan Gumrukcu; Editing by Dominic Evans)

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