Shock hike triggers lira rally
Policy rate raised by 4,150 basis points since June
Bank says will tighten further if inflation deteriorates

ISTANBUL, March 21 Reuters Turkey39;s central bank unexpectedly raised interest rates by 500 basis points to 50 on Thursday, citing a deteriorating inflation outlook and pledged to tighten further if significant and persistent deterioration in inflation is foreseen.

The hawkish surprise came 10 days before nationwide local elections and was seen by analysts as a signal that the central bank was independent from any political constraints and determined to tackle price rises.

In response the lira currency rallied as much as 1.5 to 31.91 against the dollar, reversing weeks of steady declines, and Turkey39;s dollar bonds extended a rally.

The bank has now raised its key oneweek repo rate by 4,150 basis points from 8.5 since last June, following President Tayyip Erdogan39;s victory in May elections and Uturn towards greater orthodoxy in economic policy.

The tight monetary stance will be maintained until a significant and sustained decline in the underlying trend of monthly inflation is observed, and inflation expectations converge to the projected forecast range, it said.

Policy will be tightened in case a significant and persistent deterioration in inflation is foreseen, it added after the monthly meeting of its monetary policy committee.

To reinforce the tightening move, the central bank also adjusted its policy operational…