ISTANBUL (Reuters) - Turkey's central bank stuck to a pledge not to defend the lira with rises in interest rates on Wednesday, betting on continued support for the currency from a delay in any trimming of U.S. monetary stimulus.
Emerging market currencies including the lira have rallied since the U.S. Federal Reserve opted last month not to trim its bond purchases. Growing expectations that it is unlikely to do so before March have lent more support.
That has given the Turkish bank more room to keep rates low as it seeks to support shaky economic growth. At Wednesday's meeting it kept its main policy rate, the one-week repo rate, at 4.50 percent, its borrowing rate at 3.50 percent and its overnight lending rate at 7.75 percent.
The bank said inflation was expected to continue to fall, although it expected core indicators to remain above target for some time because of recent exchange rate volatility.
"The committee will maintain the cautious monetary policy stance and continue implementing additional monetary tightening at the appropriate frequency until the ... inflation outlook is in line with medium-term targets," it said in a statement.
Turkish markets were largely unmoved by the decision, which met expectations after Governor Erdem Basci signaled several times that the bank was not planning to change interest rates any time soon.
The lira was slightly weaker at 1.9756 against the dollar by 1148 GMT, compared with 1.9665 late on Tuesday. The 10-year benchmark bond yield was at 8.43 percent from 8.52 percent at Tuesday's close.
All 15 economists in a Reuters poll had expected key rates would be left unchanged. None forecast a change in the reserve requirements the bank uses to manage liquidity conditions.
Basci said last month financial markets had already priced in the bulk of the impact of a reduction of U.S. monetary stimulus and that the lira, which fell as much as 15 percent from February to September, should soon recover.
Turkey had been among the most high-profile victims of the shift in global capital prompted by signals the Fed would rein in its ultra-easy monetary policy.
"No doubt the Turkish central bank does not want to take risks before Fed policy is clear," said Tufan Comert, a strategist at Garanti Securities, predicting that the lira's current levels should be relatively easy to maintain.
The lira has recovered more than 5 percent since hitting a record low against the dollar of 2.0840 on September 5. It stood at 1.9733 by 1124 GMT.
Operating one of the world's most complex monetary policies, the central bank has been battling to support the lira with forex auctions, liquidity adjustments and verbal intervention without resorting to rate hikes that might cool growth.
Basci has said repeatedly that he would not need to raise interest rates in the short term to defend the currency, having spent a quarter of the bank's reserves propping it up since May.
With an election cycle starting next March, Prime Minister Tayyip Erdogan's government is eager to maintain a reputation for robust economic growth and the central bank has been cautious not to jeopardize that by raising rates.
Turkey has seen explosive consumption-led growth over the past decade, with per capita wealth almost tripling in nominal terms, but has struggled to balance that expansion with a low savings rate and huge energy deficit that leaves the economy vulnerable.
The bank reiterated that it expected loan growth, running considerably above its 15 percent reference rate, to moderate gradually and forecast a continued narrowing of the current account deficit, which stands at over 7 percent of GDP.
Editing by Nick Tattersall and John Stonestreet