ISTANBUL, June 24: Turkey would weather a slide in the lira, said Prime Minister Tayyip Erdogan on Saturday ahead of Sunday's extraordinary meeting of the central bank, which is likely to raise interest rates sharply.

Analysts forecast a rate hike of some 200 basis points after central bank forex intervention on Friday, estimated at around $2 billion, failed to reverse the lira's 20 per cent fall against the dollar since April to its all-time lows of 2003.

The lira tumbled to 1.7650 against the dollar on Friday, but rebounded to 1.7050 on news of Sunday's meeting. Bond yields have surged to 22 per cent and shares have slid after a period of strong gains driven by a recovery from a 2001 financial crisis.

“Some are trying to create a fearful atmosphere because the dollar strengthened and shares fell...but the economic gains of the last four years are not artificial and temporary,” Erdogan told a meeting of his party in the southern resort of Antalya.

“Things will get better. But sometimes there are ups and downs like this in the charts,” he said.

A spike in April inflation to near 10 per cent triggered the slide in May, jeopardising an end-2006 target of 5 per cent.

Concern about a gaping current account deficit and emerging market weakness also fuelled multi-billion dollar capital flight from Turkey.

Erdogan called on the media to be less critical of the government's performance but Saturday's newspapers voiced growing concerns about the market turmoil.

“The markets become a war zone,” said a Sabah newspaper headline. “The dollar at crisis levels,” the Radikal daily said.

As the selling gains momentum, analysts point to political uncertainty as a key factor preventing markets from stabilising.

“The government must act as market turmoil is too much for the central bank,” said a headline in Referans newspaper.

It said financial markets were now looking to the government to restore investor confidence by announcing a package of measures in coordination with the International Monetary Fund, with which Turkey has a $10 billion standby accord.

The government unveiled tax cuts on Thursday, abolishing a 15 per cent withholding tax for non-residents investing in shares and bonds. This move brought only temporary market relief.

The central bank is expected to raise rates by 200 basis points at Sunday's meeting, according to the median forecast in a Reuters poll of 10 economists. Forecasts for the hike ranged between 100 and 500 basis points.—Reuters