* Fiscal reform not buried, but postponed
* PM says lira level "very satisfactory"
* Central bank should cut interest rates
(Combines stories, adds details)
By Asli Kandemir
ISTANBUL, Sept 25 (Reuters) - Turkish Prime Minister Tayyip Erdogan said on Saturday he did not completely rule out an International Monetary Fund-backed fiscal reform bill that reins in the public spending.
Erdogan, however, told a news conference that the reform's adoption has been postponed for now as it would create problems over new investments by the public sector.
Turkey has postponed the "fiscal rule" legislation, which is designed to reduce the budget deficit and debt-to-GDP ratio, in a move dashing investor expectations that it would be introduced in time for the 2011 budget.
Rating agencies have warned that the delay may result in deficit reduction plans being diluted.
"We are not completely ignoring the fiscal rule, but the fiscal rule almost operates like a domestic IMF. We have postponed its adoption and it could be passed later," Erdogan said.
Turkey's markets initially fell in early August when government ministers announced postponement of the reform bill because this could signal loose spending ahead of parliamentary elections in mid-2011,
The markets later recouped their losses after budget data continued to show high tax revenues as the economy recovers strongly from last year's recession and voters approved a European Union-backed package overhauling the constitution.
The prime minister said he believed the lira currency's value "very satisfactory" amid a debate between exporters and the central bank whether the current floating exchange rate regime curbs Turkish firms' competitiveness.
"The market itself determines the lira's level under the floating exchange rate regime and it is at a very satisfactory level. A fixed exchange rate regime would disrupt the economy," Erdogan said.
The Turkish currency
However, Erdogan said in an apparent gesture to exporters that the central bank's interest rates were too high and should be cut further.
The bank has dismissed past calls for lower rates by the government and it sets monetary policy at its own discretion.
The Turkish central bank left its benchmark one-week repo rate at 7 percent in its most recent meeting on Sept 16, while cutting its overnight lending and borrowing rates by 25 basis points. (Writing by Selcuk Gokoluk; Editing by Ron Askew)