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ANKARA, Oct 28 (Reuters) - Turkey's central bank governor said on Thursday that addressing the current account deficit was key to tackling price stability and a weak lira, as the bank sharply revised its end-year inflation forecast to more than 18%.
Sahap Kavcioglu said the bank cut its policy interest rate recently because current inflation pressures were temporary and it would evaluate how much room there was for more cuts in the coming two months.
Speaking at the presentation of the bank's quarterly inflation review, Kavcioglu also said the bank would keep building up reserves.
"When we achieve current account surplus we will achieve financial and price stability," Kavcioglu said. "A 5% current account deficit contradicts with inflation, growth performance and price stability and it was not sustainable."
He said he saw the 12-month cumulative current account improving during the remainder of this year.
A slide shown at the presentation reiterated there was limited room for further monetary policy easing by year-end, after the bank cut its policy rate by 200 basis points to 16% last week.
Kavcioglu reiterated the bank's view that some of the recent upward pressure on inflation came from transitory factors including a lifting of coronavirus-related restrictions over the summer.
"The recent rise in inflation was caused by a rise in food and import prices, supply-side elements like disruption in the procurement processes, increase in regulated prices and developments due to reopening after the (COVID-19) outbreak," Kavcioglu said, adding that some factors would start to ease.
The bank raised its mid-point forecast for inflation at the end of this year to 18.4% from 14.1% and raised its end-2022 inflation forecast to 11.8% from 7.8%.
Kavcioglu also said the end-2023 inflation forecast was raised to 7% from 5% in the previous report. The 2022 food price inflation forecast was 13.9%, up from 10.1%.
The lira, which fell to a record low against the U.S. dollar earlier this weak before regaining some of that ground, weakened on Thursday by more than 1.2% to 9.616 to the dollar at 0907 GMT.
The central bank's year-end forecasts have crept up from 9.4% earlier this year and have well undershot the actual inflation rate over the last two years. It has been in double digits and well above emerging markets peers for most of the last four years, eating into Turks' earnings and hurting President Tayyip Erdogan's opinion polls.
(Reporting by Ali Kucukgocmen, Nevzat Devranoglu and Jonathan Spicer in Ankara, Ezgi Erkoyun in Istanbul Writing by Daren Butler Editing by Dominic Evans)
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