By Selcuk Gokoluk
ISTANBUL, Oct 3 (Reuters) - Turkey is strongly rebounding from the economic downturn, but to make the recovery more robust, the government should cut borrowing to avoid crowding out the private sector, the IMF's European head Marek Belka said.
The International Monetary Fund expects Turkey to grow more than 3 percent next year, he said.
'The Turkish economy is rebounding in an impressive way, this is not common,' he told a news conference on Saturday.
The IMF expects the Turkish gross domestic product to shrink 6.5 percent this year, and return to growth at 3.7 percent next year, it said in its World Economic Outlook.
Belka said the main problem for the country was to stabilise its public debt/GDP ratio and then eventually reduce it.
The Turkish budget is expected to run a deficit at 6.6 percent of GDP this year.
'To make the recovery more robust it is important to reduce the extent of crowding out by public borrowing the needs of the private sector,' Belka said.
Belka said that the Turkish banking sector was in good shape and had weathered the crisis well. He also said he did not see a problem with falling interest rates in Turkey.
The Turkish Central Bank cut its interest rates from 16.75 percent late last year to a historic low at 7.25 percent last month.
September inflation came in lower than expected, backing expectations of further monetary easing in Turkey.
'The fact that the lira is solid gives room for loosening of monetary policy. I do not see a big problem if real interest rates go down,' said Belka.
Ajai Chopra, deputy director of IMF's European Department, said Turkey's 'aggressive' monetary policy was necessary given a very sluggish economy.
'We see an accommodative monetary stance as appropriate for now. We think in the future this stance will obviously need to take into account the degree of fiscal consolidation that will take place in the economy,' Chopra said.
Turkey's central bank rate-setting committee will meet on Oct. 15.
'Obviously the Central Bank of Turkey will need to be vigilant about the prospects of inflation so that its stance is consistent with meeting inflation targets,' Chopra said.
Consumer prices rose 5.27 percent on the year in September, close to the 40-year-low of 5.24 percent posted in May, keeping inflation comfortably within the central bank's official year-end target of 7.5 percent.
(Additional reporting by Jan Strupczewski and Toni Vorobyova; Editing by Ruth Pitchford) (tel +32 2 287 68 37, fax +32 2 230 55 73, e-mail: jan.strupczewski@reuters.com; RM: jan.strupczewski.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
ISTANBUL, Oct 3 (Reuters) - Turkey is strongly rebounding from the economic downturn, but to make the recovery more robust, the government should cut borrowing to avoid crowding out the private sector, the IMF's European head Marek Belka said.
The International Monetary Fund expects Turkey to grow more than 3 percent next year, he said.
'The Turkish economy is rebounding in an impressive way, this is not common,' he told a news conference on Saturday.
The IMF expects the Turkish gross domestic product to shrink 6.5 percent this year, and return to growth at 3.7 percent next year, it said in its World Economic Outlook.
Belka said the main problem for the country was to stabilise its public debt/GDP ratio and then eventually reduce it.
The Turkish budget is expected to run a deficit at 6.6 percent of GDP this year.
'To make the recovery more robust it is important to reduce the extent of crowding out by public borrowing the needs of the private sector,' Belka said.
Belka said that the Turkish banking sector was in good shape and had weathered the crisis well. He also said he did not see a problem with falling interest rates in Turkey.
The Turkish Central Bank cut its interest rates from 16.75 percent late last year to a historic low at 7.25 percent last month.
September inflation came in lower than expected, backing expectations of further monetary easing in Turkey.
'The fact that the lira is solid gives room for loosening of monetary policy. I do not see a big problem if real interest rates go down,' said Belka.
Ajai Chopra, deputy director of IMF's European Department, said Turkey's 'aggressive' monetary policy was necessary given a very sluggish economy.
'We see an accommodative monetary stance as appropriate for now. We think in the future this stance will obviously need to take into account the degree of fiscal consolidation that will take place in the economy,' Chopra said.
Turkey's central bank rate-setting committee will meet on Oct. 15.
'Obviously the Central Bank of Turkey will need to be vigilant about the prospects of inflation so that its stance is consistent with meeting inflation targets,' Chopra said.
Consumer prices rose 5.27 percent on the year in September, close to the 40-year-low of 5.24 percent posted in May, keeping inflation comfortably within the central bank's official year-end target of 7.5 percent.
(Additional reporting by Jan Strupczewski and Toni Vorobyova; Editing by Ruth Pitchford) (tel +32 2 287 68 37, fax +32 2 230 55 73, e-mail: jan.strupczewski@reuters.com; RM: jan.strupczewski.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.