The bank cited global uncertainties and slowing Turkish growth for keeping its stance unchanged. Even though the decision was expected, the lira fell on fears that the central bank is behind the curve in tackling an overheating economy and widening current account deficit.
Analysts are critical of the bank's unorthodox policy mix that has kept interest rates at a record low while relying on high bank reserve requirements to tighten credit.
The lira weakened to 1.6360 per dollar, its weakest since April 2009, from 1.6232 before the decision.
The benchmark Feb 20, 2013 bond yield rose to 9.29 percent after the decision from 9.21 percent beforehand.
The central bank said it would hold the one-week repo rate at its record low, while the overnight borrowing rate remained at 1.5 percent and the overnight lending rate stayed at 9 percent.
Of 12 analysts polled by Reuters last week, all had forecast the bank would leave rates on hold, although some began to speculate the bank may make a surprise increase to the lending rate or to banks' required reserve ratios, given persistently high credit growth and expectations of accelerating inflation.
"There were some people expecting a rate hike, so leaving rates unchanged has caused the lira to ease. Bond yields are increasing for the same reason," said Murat Yardimci, head of trading at ING Bank.
Other analysts said the overall tone of the central bank statement, lacking any hint of when more conventional tightening might occur, sparked the selling.
The benchmark bond yield started this year at 7.06 percent, but has risen steadily since as banks were forced to sell bond holdings to meet higher reserve requirements and as investors, doubtful over central bank policy, avoided Turkish assets.
The main Istanbul share index fell 1 percent after the decision, but it recovered and by 1153 GMT was 0.14 percent higher at 61,313.20 points, outperforming the emerging markets benchmark index which fell 0.54 percent.
Emerging markets have taken a hammering in recent months from concerns Greece might eventually default. But Turkish assets have suffered more due to fears about inflation, overheating and the central bank's strategy.
Copyright Reuters, 2011