UPDATE 2-Turkish central bank hikes rates, signals more

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By Emma Ross-Thomas

ISTANBUL, May 15 (Reuters) - Turkey's central bank raised key interest rates by a half percentage point on Thursday, hiking for the first time since 2006 as expected, and signalled further tightening could follow.

The lira <TRY=>, which had firmed ahead of the decision, weakened slightly on the news, as analysts said some market players had been expecting a larger hike. One economist said the tone of the statement suggested the next rate hike could be smaller than expected.

The bank raised its benchmark borrowing rate to 15.75 percent from 15.25 percent and increased the lending rate to 19.75 percent from 19.25.

It said in a statement it would take necessary measures to stop rising food and energy prices having a negative effect on overall inflation.

"In this sense, if necessary, a measured rate hike will be on the committee's agenda in the coming period," it said, adding that the timing and size of another likely hike would depend on global markets, external demand, fiscal policy and other factors affecting the mid-term inflation outlook.

The spectre of rising inflation and concern over whether the government will heed its calls for fiscal discipline had been expected to exert pressure on the central bank to raise rates.

The bank has a 4 percent year-end inflation target, but it said it would be focused on approaching a forecast of 6.7 percent it had given for end-2009.