(Adds analyst comment, central bank minutes)
By Hatice Aydogdu
ANKARA, Oct 31 (Reuters) - Turkey's weakening lira currency will boost fourth-quarter inflation, the central bank said on Friday as it raised its forecast for end-2008 inflation by 0.5 percentage points to 11.1 percent.
The lira
Swings in the lira's exchange rate are expected to add 1.2 percentage point to inflation this year and 1.5 points in 2009, the governor of the central bank, Durmus Yilmaz, told a news conference on the bank's latest quarterly inflation report.
However, easing energy prices will help offset some of the impact of currency moves and service price inflation will ease markedly due to weak demand, the central bank said.
Yilmaz said inflation would be in a range of 6.1-9.1 percent in 2009 and 4.3-7.9 percent in 2010. Inflation was expected to fall to 5.4 percent as of the third quarter of 2011.
The latest 2008 inflation forecast was above an official target of 4 percent for this year. In September, Turkey's consumer prices rose 11.13 percent from the previous year and in July the bank had forecast an end-year rate of 10.6 percent.
He said official inflation targets for the next three years were "attainable". It has a target for next year of 7.5 percent.
Goldman Sachs economist Ahmet Akarli said the overall tone of the inflation report was dovish but that the bank had to balance its desire to cut interest rates with its concern about global financial market volatility.
"So the central bank remains cautious and is likely to sit tight for now and do its best to ensure the orderly functioning of local money and forex markets," he said.
GROWTH
Yilmaz said the government's 4 percent growth for 2009 could be missed given the condition of the world economy. Growth slowed to 1.9 percent in the second quarter from rates of nearly 7 percent in recent years.
Turning to relations with the International Monetary Fund, Yilmaz said Turkey needed an external anchor to press ahead with economic reforms.
Turkey has yet to decide whether it will sign a precautionary standby deal with the IMF, as urged by business leaders. The country's previous $10 billion stand-by deal -- which stipulated conditions related to loans -- expired in May.
The government said it would not welcome excessive spending curbs imposed on Turkey by the IMF.
The central bank, which left its key borrowing rate at 16.75 percent this month but trimmed the lending rate to 19.75 percent, was closely monitoring the impact of the rising risk premium on pricing behaviour, Yilmaz said.
The minutes of the central bank's latest monetary policy committee meeting showed the spread between the two rates may narrow further in the coming period.
It also said gas and electricity price hikes were expected to push October inflation up by 0.27 percentage points. (Editing by Andy Bruce, Swaha Pattanaik)