* Lira weakens more than 1 percent as stronger signal
* Central to hold policy meeting on March 16
* Governor sees inflation downtrend from mid-year
(Adds analyst comment, markets, background)
By Nevzat Devranoglu
DENIZLI, Turkey, March 8 The Turkish Central
Bank will closely monitor pricing behaviour and implement
further monetary tightening if needed, its governor said on
Wednesday, but the lira weakened in apparent disappointment he
did not give a clearer signal on rates.
Governor Murat Cetinkaya's comments, at a conference in
western Turkey, came just over a week before the bank's next
rate-setting meeting and helped trigger a lira slide of more
than 1 percent against the dollar.
The bank has taken unorthodox tightening steps to stem
rising inflation and defend the lira after a slide at the start
of 2017, but has not raised its policy rate since last November.
Its next rate-setting meeting is on March 16.
"Heightened global uncertainty necessitates a cautious
monetary policy stance. Accordingly, pricing behavior will be
closely monitored and further monetary tightening will be
implemented if necessary," Cetinkaya said.
The bank is tightening liquidity, pushing the average cost
of funding up by 20-25 basis points in the last week
to a five-year peak against a background of double-digit
inflation and Federal Reserve rate hike expectations. Since
January, the funding rate has risen 225 basis points.
The lira weakened as far as 3.7310 against the
U.S. currency after Cetinkaya's presentation from 3,6770
beforehand. The main share index fell 0.7 percent.
"Probably, market players were expecting a stronger message
from the CBT," said BGC Partners chief economist Ozgur Altug,
forecasting it will have to tighten more if the Federal Reserve
hikes rates next week, as expected.
"However, because of the approaching referendum an outright
policy rate hike might not be on the agenda," he said, referring
to an April vote on constitutional reform boosting President
Tayyip Erdogan's powers.
At its last monetary policy committee meeting on Jan. 24,
the central bank hiked its overnight lending rate by 75 basis
points to 9.25 percent and the rate at its late liquidity window
to 11 percent from 10.
The bank shied away from raising its main repo rate, failing
to ease concerns about its independence. Erdogan regularly
exerts pressure for lower rates to boost flagging growth.
Altug said the central bank could raise its late liquidity
window rate to 12 percent from 11 percent.
To tighten liquidity, the central bank has this week reduced
the level of funding which it supplies at 9.25 percent to 12
billion lira from 22 billion last week, meaning it was likely to
provide more funding through the late liquidity window rate.
Cetinkaya also said lira depreciation might lead to upside
inflationary pressure in the short-term but inflation was
expected to trend downward by the middle of the year.
(Additional reporting by Ece Toksabay, Tuvan Gumrukcu, Behiye
Selin Taner, Writing by Daren Butler, Editing by Angus MacSwan)