* Rate decision does little to reassure market
* Cbank announces 2 additional tightening days
* Bank seen under political pressure
By Seda Sezer
ISTANBUL, Jan 22 (Reuters) - The Turkish lira hovered near record lows on Wednesday as the central bank’s decision to avoid a rate rise and opt for stealth tightening was seen as a less effective support for the currency and a nod to political pressure.
The bank kept its main interest rates on hold on Tuesday, including the overnight lending rate at 7.75 percent, but said it would fund the market at 9 percent on “additional tightening” days, when it cancels repos and sells dollars at auction.
A corruption scandal shaking the government and fears about the impact of cuts to U.S. monetary stimulus have sent the lira down 10 percent against the dollar over the past month, and investors had been crying out for a rate hike to defend it.
The bank’s decision did little to ease the pressure, with investors left wondering how frequently “additional tightening” days would be implemented and whether the bank would have the resolve to prevent a further lira slide.
Prime Minister Tayyip Erdogan, whose ruling party is preparing for local elections in March and a presidential contest in August, has railed against high interest rates, which would pose a risk to already slow economic growth, and played down the recent market turbulence.
His economy minister said the day before the interest rate decision that the lira’s volatility did not pose a threat and said the central bank should not hike.
“The central bank once again seems to have invented a way of hiking rates without calling them a ”rate hike“,” BNP Paribas-TEB said in a research note.
“The frequency and duration of additional tightening days will be important as to the effectiveness of the central bank’s move ... As the central bank makes its policy tightening in a convoluted way, it gets less bang for the buck.”
The bank said on Wednesday it would implement two days of additional monetary tightening on Jan 27 and 30, funding the market at an interest rate of 9 percent instead of the usual 7.75 percent and selling $100 million at auction on both days.
That did not appear enough to reassure the market.
The lira, which fell to a record low of 2.270 to the dollar immediately after Tuesday’s rate decision, was only slightly firmer at 2.267 by 1057 GMT.
“Added complications to the policy framework only serve to turn off investors, who are already uneasy about low visibility - both on the political and monetary policy fronts,” said Finansbank economist Inan Demir.
“We do not expect this decision to provide any respite for the lira. On the contrary, we continue to see further depreciation until we see the central bank forcefully defending the currency.”
The yield on the 10-year benchmark bond was at 10.12 percent after closing at 10.19 percent in thin trade on Tuesday. The main Istanbul stock index was up 1.39 percent at 67,230.35 points, outperforming the main global emerging market index, which gained 0.39 percent. (Editing by Nick Tattersall and Susan Fenton)