UPDATE 1-IMF urges Turkey to speed up policy unwinding

(Recasts, adding details, background)

WASHINGTON, May 28 (BestGrowthStock) – With Turkey’s economy
recovering rapidly and inflationary pressures building, it
needs to accelerate an unwinding of emergency rescue measures,
the International Monetary Fund said on Friday.

If fiscal policy is reined in, Turkey’s interest rates can
rise gradually, but if not, monetary policy will have to be
tightened faster, the IMF mission said in a statement at the
end of economic consultations with the government.

“A broad-based monetary tightening — through withdrawal of
liquidity and small sustained increases in the policy rate —
should be accelerated,” the mission said.

“An even faster monetary tightening would be needed if the
anticipated cyclically-adjusted fiscal consolidation is not
forthcoming,” it added.

Turkey’s economy has recovered quickly after a sharp
decline due to the global financial crisis.

The IMF said growth was set to continue, with the economy
expanding 6.25 percent in 2010 before moderating to around 4
percent after that.

Inflation, which temporarily hit double digits in recent
months and has dogged Turkey in the past, should ease, the IMF
added.

It said Turkey’s direct banking and trade exposures to the
crisis-hit euro area are limited. Still, the Fund cautioned
that Turkey could face higher capital inflows and commodity
import prices, which could exacerbate inflation and current
account deficit pressures.

“In this event, fiscal and monetary exit would need to be
further accelerated,” the IMF said. If inflationary pressures
were to subside due to weak demand from Europe, then monetary
tightening should be halted and even reversed, it added.

Turkey decided not to seek an IMF loan agreement earlier
this year, ending months of speculation in financial markets
after its previous $10 billion stand-by accord expired in
2008.

The IMF said Turkey should stick to 2010 budget spending
plans while avoiding revenue-reducing policy changes in light
of higher growth forecasts.

“Such a policy would help contain current account and
inflation pressures, limit private sector crowding out, and
promote the fiscal rule’s success by reducing the adjustment
required in 2011,” the IMF said.

“It would also reinforce Turkey’s fiscal discipline
credentials by more quickly reducing government debt and
adopting a sound fiscal stance for the period ahead.”

Turkey expects the government’s fiscal rule, which should
to enforce disciplined spending, to pass through parliament by
the end of June.

Stock Trading
(Reporting by Lesley Wroughton; Editing by Leslie Adler)

UPDATE 1-IMF urges Turkey to speed up policy unwinding