(Adds analysts' comments, details, background)
By Daren Butler
ISTANBUL, Nov 19 (Reuters) - Turkey's central bank cut its key benchmark borrowing rate by 50 basis points in a surprise move on Wednesday, saying it expected inflation to fall faster than previously forecast.
The bank also cut its overnight lending rate by 100 basis points, in a larger cut than had been predicted, in order to reduce volatility in short-term interest rates by narrowing the range between the two rates.
In moves which exerted further pressure on the lira, the bank cut the borrowing rate to 16.25 percent from 16.75 percent and lowered the lending rate to 18.75 percent from 19.75.
"Subsequent policy decisions will to a large extent depend on global market developments and their domestic impact," the bank said in a statement after its monthly monetary policy committee meeting.
The lira
"I think this is a premature rate cut, and its impact on the currency should be negative. I believe that most of the market will be thinking the same way and we will see currency depreciation in the coming days," said EFG economist Baturalp Candemir.
Out of 17 analysts who took part in a Reuters poll last week, all expected the borrowing rate would be left unchanged and six forecast a cut in the lending rate to 19.25 percent.
SHARP ECONOMIC SLOWDOWN
While the bank attempts to bring annual inflation back down to single digits, it is under pressure from the government to be sensitive to a sharp slowdown in economic growth this year after growth of around seven percent in the previous five years.
The central bank statement said the latest data showed that the slowdown in economic activity had become even clearer.
It said sharp falls in oil and commodity prices would have a positive impact on inflation, which according to the latest twice monthly central bank survey was expected to end the year at 11.78 percent, compared with an official 4 percent target.
"The board decided to cut the borrowing rate by 50 basis points because the fall in inflation was seen being faster than previously forecast," the statement said.
Investor attention is focused currently on whether Turkey will agree a loan accord with the IMF after the expiry of a $10 billion stand-by deal in May. Business leaders are calling for such a move to cushion the impact of the global crisis.
"Given the lack of an IMF programme, the lira is very vulnerable to any uncertainties and will continue to spike further versus the dollar," said C.A. Cheuvreux economist Simon Quijano-Evans.
The central bank had raised its overnight borrowing rate by 1.5 percentage points between May and July and it has been on hold since then. (Reporting by Daren Butler; Editing by Ron Askew)