Turkey's Central Bank says inflation in 2009 may drop below target

The Central Bank targets 7.5 percent inflation in 2009. �

Yilmaz told a news conference he expected inflation to range between 4.8 percent and 7.2 percent in 2009 and between 3.5 percent and 7.1 percent in 2010.

“In 2009 with 70 percent probability, we predict the inflation on a range of 4.8 and 7.2 percent with 6 percent as the mid-point,” Yilmaz said.

He also forecast inflation at 4.9 percent in 2011.

Yilmaz said the Central Bank would continue to cut interest rates this year if inflation kept falling and said short-term external financing needs had fallen below $30 billion.

Yilmaz also said he did not see any obstacles to reaching a loan agreement with the International Monetary Fund. He said differences over some issues, such as tax administration, had been overcome.

Turkey and the IMF are still talking on a three-year standby accord after the country's previous $10 billion deal expired a year ago. Markets have been clamoring for a deal to help Turkey weather the global financial crisis.

Yilmaz predicted the Turkish economy would start recovering in mid-2010 and said gross domestic product may post a double-digit contraction in the first quarter of this year.

“In the recent period, there was a limited pick-up in bank loans, but this will not be permanent without a global recovery,” Yilmaz said.

The IMF expects Turkey's economy to shrink 5.1 percent this year, after growing nearly 7 percent between 2002 and 2007.

The IMF loans to Turkey should be directed to the Treasury to help it reduce its debt repayment load and leave more funds for the private sector to borrow, Yilmaz said.