RTTNews - Turkey's central bank on Tuesday reduced its key interest, the overnight borrowing rate, by another 50 basis points to 7.75% from 8.25%. It also lowered the overnight lending rate to 10.25% from 10.75%.

The central bank indicated that the ongoing recovery in activity would be gradual and protracted. External demand remained weak, domestic investment continues to fall and there were no significant improvements in the labor markets as well. Moreover, recent developments added to the uncertainty regarding the strength of consumption recovery, it said.

Therefore, the central bank expects inflation to remain at low levels for a long period of time, in line with its estimates made in the Inflation Report.

The central bank said it would be necessary to maintain an easing bias in the monetary policy, as tightness in the financial conditions continues, and uncertainty regarding the impact of the financial market turmoil on the real economy persists. The monetary policy committee said further measured cuts would be necessary, unless there was an improvement in economic activity.

Commenting on the interest rate decision by Turkey's central bank, Danske Research said it continues to expects the year-end rate to be 7.25%, with a slight downside risk if the lira remains stable during 2009.

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