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Debate over 'cooling' in full swing after rate cut signal.

ySTANBUL (CyHAN)- A weeks-long debate over central bank measures to curb fast growth in the Turkish economy continues following a signal from the bank that interest rates would be cut for a third time after remaining stable for nearly seven months.

The dispute began in September, when Finance Minister Zafer Ecay-layan criticized the Turkish Central Bank's monetary policy as too slow to start revitalizing economic activity. It later spread to government, with Deputy Prime Minister Ali Babacan siding with the bank, stating Ecay-layan's calls for accelerated economic growth could not be heeded under the present circumstances. This led to the establishment of two camps within the government, Prime Minister Recep Tayyip Erdoy-an declaring his backing of the "Ecay-layan camp."

The central bank has been varying borrowing rates within the interest rate corridor to combat inflation and/or kickstart economic growth since last year. On Oct. 18, it brought down the upper end of the bank's interest rate corridor to 9.5 percent and said was ready for further cuts to curb an overvalued lira. The lira gained noticeably following Fitch's decision last week to upgrade Turkey's credit rating to investment level, a move that could inject hot money inflow into Turkish markets.

Finance Minister Ecay-layan said on Tuesday that "the bank did not have to wait for Fitch's decision" before cutting interest rates. Since becoming governor of the central bank in April of last year, Erdem BaE-E*y has remained cautious in reducing key interest rates due to a lingering inflationary risk for the economy, a policy praised by many. However, Ecay-layan argued: "We have been suggesting the bank take such a step for a long time. C* The market environment is ready; why wait for an upgrade?" Calling on the central bank to adopt "a more proactive stance," Ecay-layan said Turkey should lose no time in shoring up economic growth.

Central bank policies have also been aimed at maintaining what is called a "soft landing" following two years of strong growth in the economy. The government has slashed its 2012 growth forecast to 3.2 percent from an earlier 4 percent. Babacan earlier estimated average annual growth of 5.3 percent between 2013-2017, a much stronger performance.

The Turkish business world now seems to be weighing in on the issue, with Mustafa KoE*, head of the executive board of Turkish conglomerate KoE* Holding, telling reporters in Van on Tuesday that he backs measures to cool down economic growth. He warned fast growth could result in an even higher current account deficit (CAD), adding, "We cannot grow 10 percent each and every year," remarks that put KoE* firmly in the "Babacan camp."

Evaluating Fitch's decision, KoE* speculated that Moody's and Standard&Poor's could take similar steps. The former holds Turkey's credit rating at one notch below investment level.

(Cihan/Today's Zaman) CyHAN

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Publication:Cihan News Agency (CNA)
Date:Nov 14, 2012
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