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imageISTANBUL: Turkey's central bank cut its overnight lending rate by 75 basis points in a surprise move on Wednesday despite stubborn inflation, in its first rate decision since Prime Minister Tayyip Erdogan was elected president.

The bank cut the lending rate to 11.25 percent from 12 percent, and also cut its overnight borrowing rate for primary dealers to 10.75 percent. It left other key rates including its main 8.25 percent weekly repo rate on hold.

Earlier this month, the central bank said the inflation forecasts from its monthly survey had risen to 8.7 percent at the end of the year from 8.3 percent previously, despite its aggressive rate hike in January.

The majority of economists polled by Reuters say high inflation undermines the case for rate cuts.

But Erdogan, wedded to the idea that high rates in fact cause inflation, has repeatedly urged the central bank to make bigger rate cuts, after an emerging market sell-off in January forced it to almost double rates at a midnight meeting.

"The market was not expecting any change. A cut to the upper band can be perceived as a move to please the economy management," Istanbul-based Global Securities said in a note to clients after the decision was announced.

Erdogan was elected president this month in the first direct vote for the position, reassuring markets that there would be no big changes in the management of the economy, but raising concern about continued pressure on the central bank.

Economy Minister Nihat Zeybekci told Reuters a day after Erdogan's victory that the government would continue to seek lower rates, adding that the central bank's mandate should include employment and growth as well as price stability.

In a Reuters poll of 20 banks prior to the meeting, none forecast any change in the overnight lending rate. Thirteen said they expected the main weekly repo rate to stay at 8.25 percent, while six predicted a 0.25 percentage point cut, and one expected a cut of half a percentage point.

The lira strengthened to 2.1530 against the dollar after the announcement from 2.1640 beforehand.

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