Turkish central bank signals no more rate hikes for now -economists

ISTANBUL Wed Feb 19, 2014 7:56am EST

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ISTANBUL Feb 19 (Reuters) - Turkey's central bank told economists on Wednesday it expects average funding costs to hover at around 10 percent for the foreseeable future, signalling it has no plans to hike interest rates further in the short term.

The bank raised rates sharply in an emergency policy meeting on Jan. 28, pushing the average cost of funding for banks to over 10 percent from 7.26 percent beforehand. It was at 10.03 percent as of Feb. 18.

It left rates on hold at its latest policy meeting on Tuesday after the emergency hike helped stabilise the lira, shying away from further tightening for fear of hitting growth ahead of elections next month.

January's big hike stunned investors and ignored strong opposition from Prime Minister Tayyip Erdogan, who has built his reputation on Turkey's economic growth over the past decade. He has been a vocal opponent of rate hikes, fearing they will lead to a slowdown just as Turks go to the polls.

In a closed-door meeting with economists on Wednesday, members of the monetary policy committee said they had opted for the decisive move in January - when they lifted each of the bank's main rates by around 500 basis points - rather than a gradual increase over a longer period.

"The central bank signalled no further rate changes for the foreseeable future, given its strong and front-loaded action in January," Muhammet Mercan, an economist at ING bank, said in a note to clients following the meeting.

Economists said the central bank also repeated that if deemed necessary, liquidity policy may be tightened further.

The lira was trading at 2.1846 to the dollar by 1033 GMT, much stronger than the record low of 2.39 it hit on Jan. 27, a day before the emergency rate hike.

But it could come under renewed pressure in the months ahead as Turkey enters a potentially turbulent election period and its wide current account gap leaves it one of the most vulnerable emerging markets to the winding back of U.S. monetary stimulus. (Reporting by Nevzat Devranoglu and Behiye Taner; Writing by Seda Sezer, Editing by Nick Tattersall and Toby Chopra)

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