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Turkish central bank hikes lending rate, but leaves policy rate on hold

People walk past a currency exchange shop on December 5, 2016 in Istanbul, Turkey.
Chris McGrath | Getty Images
People walk past a currency exchange shop on December 5, 2016 in Istanbul, Turkey.

Turkey's central bank on Tuesday hiked its overnight lending rate by 75 basis points after sharp falls in the lira but left its main policy rate on hold, moves that may not be sharp enough to draw a line under concern about its independence.

The bank raised its overnight lending rate to 9.25 percent from 8.5 percent. All but one of 18 economists in a Reuters poll had forecast a hike in the overnight lending rate, which is the upper band of the bank's interest rate corridor.

It left its benchmark one-week repo rate at 8 percent. Half of the economists had forecast a hike of 50 basis points.

The bank also increased the rate at its late liquidity window, where it has been increasingly encouraging lenders to source lira, to 11 percent from 10 percent.

Most economists had expected an increase in the late liquidity window rate, with estimates ranging between a hike of between 50-300bps.

The lira has fallen some 8 percent this year, adding to double-digit declines in 2015 and 2016. Investors have been unnerved by insecurity, political uncertainty and a slowing economy and worry the central bank is less than independent.

President Tayyip Erdogan, who wants cheap credit to boost growth, has long been opposed to high interest rates and the central bank has resorted to unorthodox liquidity moves, heightening the perception it wants to avoid a sharp rate hike.

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