Turkey's central bank says holds key interest rate, defying PM

Turkey's central bank kept its key interest rates steady on Thursday, defying pressure from the prime minister for a rate cut.

In a statement posted on its website, the bank said the overnight lending rate was being held at 12.0 percent, while the borrowing and one-week repo rates were left at 8.0 percent and 10.0 percent.

The announcement came after the bank held its monetary policy committee meeting, which agreed that the tight monetary policy would be maintained until an improvement in the inflation outlook was secured.

Prime Minister Recep Tayyip Erdogan said early this month after his Islamic-rooted party scored a sweeping victory in the March 30 local polls despite corruption allegations and Internet bans that the bank should cut interest rates in order to stimulate the economy.

Erdogan, a strong candidate for the presidency in August, has made a turnaround in Turkey's economic fortunes a keystone of his 11-year rule, pushing the central bank, which is officially independent, for lower rates to boost credit for consumers and businesses.

The bank aggressively raised key rates in January in a bid to step a steep drop in Turkey's currency, the lira.

The January hike came amid an escalating crisis for Erdogan sparked by a graft probe targeting his inner circle, months after mass anti-government protests.

"The central bank should hold an extraordinary meeting to cut (rates) ... just as they met previously to raise them," Erdogan said on April 4.

"Investors in Turkey will be eager once interest rates are lowered. More investments will be made," he added.

Turkish lira rallied to 2.1280 against the US dollar, and 2.9434 against euro after the bank decision.