Turkish c.bank stays cautious despite rate cut

ISTANBUL, Oct 2 (Reuters) Turkey's central bank will maintain its cautious stance in monetary policy despite an unexpected interest rate cut last month, Governor Durmus Yilmaz said in comments published on Tuesday.

Yilmaz also said the pace of rate-cutting will be influenced by the size of public sector wage hikes for 2008 and by whether the budget is in line with targets.

In a presentation to newspaper columnists on Monday evening, released on the bank's Web site on Tuesday, he said end-2008 inflation may be below the bank's target of 4 percent if the bank continues its cautious and moderate rate cutting process.

''The cautious monetary policy stance continues despite the beginning of the interest rate-cutting process in September,'' Yilmaz said.

The central bank surprised the market with a 25 basis point interest rate cut on Sept 13 and said the timing of further easing would depend on global markets and government spending.

It cut the borrowing rate to 17.25 percent and the lending rate to 22.25 percent. Last year it hiked rates by 425 basis points amid a sharp market sell-off and a spike in inflation.

This year inflation is likely to exceed a similar 4 percent annual target. August consumer price inflation was 7.39 percent.

Yilmaz also said in his presentation the possible effects ofvolatility in foreign markets on Turkey would largely be in terms of limiting domestic and foreign demand.

He also said comments and proposals made by members of the government regarding monetary policy could make decision-making harder and bring the independence of the central bank into question.

REUTERS KR PM1517