ANKARA - Turkey's Central Bank on Thursday slashed its key overnight borrowing rate by 50 basis points to 15.75 percent despite faltering efforts to reduce inflation.
The Bank's monetary policy board said its decision was based on expectations that a slowdown in government spending would help bring inflation down.
"The board believes the recent increase in inflation is not of a durable nature ... and sees a high possibility of inflation coming close to the target in the mid-term," a statement said.
"Despite the risk posed by food and energy prices, inflation is expected to continue to fall," it said.
It was the fourth time that the overnight borrowing rate was reduced since September when the bank slashed the rate for the first time in 14 months.
Consumer prices in Turkey rose 1.95 percent in November from the previous month to reach 8.4 percent on a 12-month basis, well above the government's year-end target of four percent.
Fighting inflation is a key element in a three-year economic stability programme Turkey is implementing with the support of a 10-billion-dollar International Monetary Fund (IMF) loan, which expires next year.
The IMF said in October that Turkey's economic outlook "remains positive overall" and "inflation should continue declining gradually" but warned that fiscal policies had been "considerably" relaxed this year as the country held early general elections and called for tighter measures in 2008.
In 2006, inflation reached 9.65 percent, nearly double the five-percent target set for that year in the austerity programme.
Tight IMF-backed financial policies had helped the government beat inflation targets over the previous three years, bringing the rate from 29.7 percent in 2002 to 7.7 percent in 2005.
su/bmm
12/13/2007 17:34 GMT