The Turkish lira traded flat on Tuesday as investors held fire hours ahead of an interest rate decision seen as a test of the central bank's independence in setting policy in the face of government pressure for lower rates. Last week a Reuters poll found 14 out of 16 economists expect the central bank to hike the benchmark one-week repo rate , with most seeing a half-percentage point move from the current 7.5 percent. They also expect a similar increase in the overnight borrowing rate.
"Aside from interest rate adjustments, we do not think much will change in the central bank's forward guidance. We remain bearish on the Turkish lira's performance and inflation outlook," Finansbank said in a note. The US Federal Reserve's decision to hike rates last week is expected to push Turkey into following suit after months of holding borrowing costs steady as the lira plummeted to record lows, while inflation remains stubbornly high. President Tayyip Erdogan has repeatedly called for lower interest rates to boost economic growth, fuelling fears of political interference in central bank policy. The lira stood at 2.9105 against the dollar at 0752 GMT, virtually unchanged from 2.9106 late on Monday.
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