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UPDATE 1-Developed states must tackle liquidity surge-Turk cbank

Published 10/21/2010, 01:05 AM
Updated 10/21/2010, 01:12 AM

* Turkish cbank: seeks action from advanced nations

* Says G20 to discuss liquidity, inflows to emerging markets

* Turkish policy rates to be maintained for "some time"

* For more stories on the G20 meeting, see [ID:nTOE69K01G] (Adds more quote, background)

SEOUL, Oct 21 (Reuters) - Developed countries need to take action over increased global liquidity that has created a boom in emerging market assets, Turkey's central bank governor Durmus Yilmaz said on Thursday.

"It is a burden and responsibility of the advanced countries to take measures on extra liquidity they create to increase economic activity in their own countries," Yilmaz told reporters in Seoul on the sidelines of a seminar ahead of a G20 finance officials' meeting in South Korea.

Yilmaz said how to ensure that extra liquidity fed through into the economies of developed economies and measures to tackle the financial flows that have poured into emerging markets would be at the core of talks at the G20 meeting later this week.

Currency tensions are expected to take centre stage at the meetings, as a decline in the dollar and China's tightly controlled foreign exchange regime have put upward pressure on other emerging market currencies that are allowed to move more freely.

Many policymakers fear sharp currency appreciation will make their countries' exports less competitive, stifling their economic recoveries.

Yilmaz said that at present it was too difficult to judge what the result of the discussions would be.

The remarks came as record-low interest rates and anaemic growth in the developed world prompt global investors to pour more money into higher-yielding emerging markets, driving up local currencies and asset markets. The Turkish lira is trading around a two-year high against the dollar.

"At the moment, we hear lots of complaints (from) Turkish exporters," Yilmaz said.

The central bank will continue to take measures to enhance the resilience of the economy against financial risks that Turkey may be exposed to in the medium term, Yilmaz said in a prepared statement.

He said the country's policy rates would be maintained at current levels for "some time", adding the economy shows no signs of overheating as inflation expectations remain stable.

"Economic activity has been recovering gradually -- no signs of overheating. Headwinds from food prices are likely to be transitory, core inflation remains subdued, inflation expectations are stable."

Earlier this month, the central bank cut its overnight borrowing rate by a surprisingly large 50 basis points to encourage interbank lending but left its policy rate unchanged as expected. [ID:nLDE69D1YU] (Reporting by Cheon Jong-woo; Editing by Kim Coghill)

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