UPDATE 2-Turkey's central bank to keep tight stance after trimming inflation forecast

Turkey's central bank will maintain its tight monetary stance until it is convinced that inflation is falling and will tighten further if necessary, the bank said on Wednesday after trimming its 2019 inflation forecast. The comments appeared to ease markets worries that the bank would lower interest rates early, and the lira gained more than 0.5 percent.

Concern over calls from President Tayyip Erdogan last year to keep rates low drove a sell-off in the lira in 2018, causing the lira to fall nearly 30 percent against the dollar and pushing inflation to more than 25 percent in October. Amid fears that the central bank would cut rates before local elections in March, Governor Murat Cetinkaya said the bank would keep a tight stance until it sees a "convincing improvement" in inflation.

"From inflation outlook to core inflation indicators and from headline inflation to the trends in pricing behaviour, we need to see improvement in all aspects of inflation," Cetinkaya said at a quarterly inflation report presentation in Ankara. "Current inflation levels require high caution," he said, adding that further tightening would be delivered if necessary.

The bank lowered its 2019 forecast by 0.6 percentage point to 14.6 percent, and Cetinkaya said it would aim to bring inflation down to single figures and converge with its target of 5 percent - its medium-term inflation target - in three years. The bank has left its policy rate unchanged since September when it hiked 6.25 percentage points to 24 percent.

The lira firmed to beyond 5.28 to the dollar after his remarks, from 5.316 earlier. Piotr Matys, emerging markets forex strategist at Rabobank, said the "modest" reduction in inflation forecasts and the "reassurance" of a continued tight stance would help settle market concerns.

"This is exactly the sort of message that I think many market participants wanted to hear from the central bank," Matys said. "The lira will basically continue to play an important role, and if the currency continues to appreciate or at least remain stable and inflation continues to fall, then perhaps the central bank could cut rates in Q2."

Cetinkaya also said the bank was reducing its 2020 year-end inflation forecast to 8.2 percent from 9.3 percent in its last report in October. It left its forecast for food price inflation for 2019 and 2020 unchanged at 13 percent and 10 percent respectively.

A Reuters poll on Tuesday showed that inflation is expected to rise 1 percent month-on-month in January for an annual rise of 20.29 percent. (Reporting by Ece Toksabay, Nevzat Devranoglu and Tuvan Gumrukcu; writing by Dominic Evans and Ali Kucukgocmen; editing by Larry King)