Turkey's central bank governor raised expectations for an emergency interest rate hike on Tuesday, denying he was hostage to political pressures and vowing decisive action to fight rising inflation and a tumbling lira. Erdem Basci said the bank would not hesitate to tighten monetary policy in a "lasting way" if needed and asserted the bank's independence amid investor concern that it has shied away from rate hikes under pressure from the government. He also ruled out any imposition of capital controls, saying such moves were "not in our dictionary." Prime Minister Tayyip Erdogan, keen to maintain economic growth ahead of an election cycle starting in two months, has been a vociferous opponent of the higher borrowing costs sometimes needed to bolster currencies, railing against what he describes as an 'interest rate lobby' of speculators seeking to stifle growth and undermine the economy. That has left the central bank struggling to contain the lira's precipitous slide. Investor confidence has been damaged by a corruption scandal shaking the government, fears about a power struggle and the global impact of a cut in U.S. monetary stimulus. "In Turkey , politicians publicly criticise or praise central bank decisions ... I don't think it threatens the bank's independence," Basci told a news conference to announce the bank's quarterly inflation report. "Nobody should have any hesitation that the central bank will use all available tools. The bank will not hesitate to take steps to make lasting tightening in monetary policy if deemed necessary," he said. The lira firmed on his comments to 2.2601 against the dollar from 2.3120 late on Monday, having touched a record low of 2.3900 on Monday morning. The cost of insuring Turkish debt meanwhile eased from Monday's 19-month highs, according to data from Markit. The bank sharply raised its inflation forecast for the end of the year to 6.6 per cent, heightening market expectations that it will hike rates at its first extraordinary monetary policy meeting since August 2011 , the height of the eurozone crisis. It is expected to raise its lending rate - the cost of its overnight loans to Turkish lenders — by 225 basis points to 10 per cent, according to the median forecast in poll of 31 economists.
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