By Can Sezer
ISTANBUL, April 30 (Reuters) - Turkey's central bank kept its inflation forecasts unchanged for this year and next on Tuesday and said it would consider a measured cut in interest rates if the lira appreciated further.
Governor Erdem Basci said the bank would think about trimming short-term rates if the lira's real exchange rate rises above 120 on its index. The rate stood at 119.95 in March.
The bank has used 120 for months as a reference level on the index, which measures the weighted average of domestic prices relative to prices of its trade partners, but Basci said it would raise the level by 1.5-2.0 percentage points next year.
At a news conference announcing the bank's quarterly inflation report, Basci said the bank was keeping its mid-point inflation forecast for the end of 2013 unchanged at 5.3 percent and for the end of 2014 at 4.9 percent.
Turkish growth slowed sharply to 2.2 percent last year and the central bank has been trying to spur the economy since mid-2012, embarking on a series of rate cuts last September. Domestic demand remains weak, although bank lending is rising faster than the central bank wants.
Basci said there had been a slight pick-up in growth in the first quarter and the trend would continue in the second, with growth expected to be higher this year as a whole than in 2012.
He expected loan growth, which has been running at around 19 percent, to be in line with its medium-term target of 15 percent by the end of the year.
The bank has also been taking steps to battle a flood of cheap cash from central banks in the developed world that threatens to knock the Turkish economy off balance, a prospect made all the more real after the Bank of Japan announced an unprecedented $1.4 trillion stimulus package this month.
Basci said capital inflows to Turkey had accelerated after the Bank of Japan's move and said monetary policy would remain flexible in both directions.
'Ongoing uncertainties regarding the global economy and the volatility in capital flows necessitate monetary policy to remain flexible in both directions,' Basci said.
The bank kept its annual food price inflation forecast at 7 percent and its medium-term inflation forecast at 5 percent. Basci said the forecasts were based on an expected oil price of $103 per barrel this year, down from $108 in its previous report in late January.
(Additional reporting by Seda Sezer and Ece Toksabay; Writing by Nick Tattersall Editing by Jeremy Gaunt.) Keywords: TURKEY CBANK/INFLATION
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