Turkish central bank hikes key rate to boost lira

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ANKARA, Turkey (AP) — Turkey's central bank has sharply raised its key interest rate to 12 percent from 7.75 percent to try to stave off inflation and support the national currency, which has fallen sharply in recent weeks.

The decision was taken Tuesday at an emergency meeting the central bank called for after the currency, the lira, hit a record low.

The central bank said its goal is to lower the country's inflation rate, which reached 7.4 percent in December. In a statement, it forecast that inflation will fall to its 5 percent target by mid-2015. The central bank said it would keep rates high until there are signs that inflation is declining.

Neil Shearing, an economist at the London-based Capital Economics, said the rate boost should help restore credibility to the central bank's goal of reducing inflation and stabilizing its financial markets.

"This is clearly good news," Shearing said.

In addition to raising its overnight lending rate to 12 percent, the central bank raised the rate on one-week borrowing from 4.5 percent to 10 percent. The rate on its late liquidity window was raised to 15 percent from 10.25 percent.

The lira has been dropping amid concerns that a bribery scandal might destabilize the government. Like currencies in other emerging markets, the lira has also been battered by concerns over a slowdown in global growth and the potential impact of the withdrawal of the Federal Reserve's stimulus in the United States.

A higher interest rate is intended to draw investor money into Turkey, which could boost the lira's value.

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AP Economics Writer Christopher S. Rugaber in Washington contributed to this report.

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