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ANKARA (AFX) - The Turkish central bank said it has raised its key interest rate by 2.25 percentage points to 17.25 pct in an attempt to stabilise the country's currency, the lira, which has lost over 23 pct of its value since May,
This is the second interest rate hike in a month. On June 7, the central bank increased its key overnight lending rate by 1.75 percentage points to 15 pct after annual inflation jumped to 9.86 pct in May, stoking concerns over the government's year-end target of 5 pct.
Turkish markets have been in turmoil since May as foreign investors grew nervous amid a global sell-off in emerging markets, political friction at home and higher-than-expected inflation figures.
The Central Bank's new governor, Yilmaz Durmus, told the Anatolia news Agency in London that the current market turbulence had nothing to do with Turkey's economic performance and was due solely to the global trend of international investors pulling out of emerging markets.
'We cannot compare the current situation with that in 2001,' he said, referring to a major financial crisis that nearly bankrupted Turkey.
'This is simply a reflection of developments on world markets,' he said. 'It has nothing to do with (Turkey's) economic indicators.'
On Friday, one US dollar bought 1.72 lira, compared with around 1.35 lira in May. The euro was trading at 2.14 lira, up from 1.65 at the beginning of May. The interest rate on the benchmark April 9, 2008 bond shot up to 21.03 pct from 19.52 pct on Thursday. The national index of the Istanbul stock exchange lost 3.2 pct to close at 33,132.3 on Friday.
This came despite an announcement the previous day by Finance Minister Kemal Unakitan of plans to scrap withholding tax for non-resident investors and reduce the withholding rate for domestic investors from 15 to 10 pct in a bid to secure cash flow into markets.
Worse-than-expected inflation figures are another major cause of the current crisis, experts say.
Economy Minister Ali Babacan acknowledged last week that inflation was likely to surpass the goverment's year-end target of 5 pct -- a Central Bank survey forecast it would hit 8.82 pct -- but said he had no plans to revise the targets.
Many analysts doubted that the rate increase would be of much help.
'Raising interest rates in the short term will not calm current turbulence,' Tim Ash of the investment company Bear Sterns told the daily Vatan. He suggested a new deal with the IMF to finance Turkey's steadily mounting public debt.
'The government must absolutely announce a series of reforms to counter inflationary trends,' economist Seyfettin Gursel told AFP, starting with a re-haul of the tax system, one of the heaviest and least efficient in Europe.
Turkey staged a spectacular recovery from two major crises, in 2001 and 1999, which had the country teetering on the brink of financial collapse and sent it running for aid from the International Monetary Fund (IMF).
Under a three-year stand-by programme backed by a 10 bln usd IMF loan, the government aimed to bring inflation down to 5.0 pct this year and 4.0 pct in 2007 and 2008. newsdesk@afxnews.com afp/ak COPYRIGHT Copyright AFX News Limited 2005. All rights reserved. The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News. AFX News and AFX Financial News Logo are registered trademarks of AFX News Limited