By Seda Sezer and Behiye Taner
ISTANBUL, Feb 14 (Reuters) - Turkey's central bank is expected to keep its key interest rates on hold on Tuesday after a dramatic hike in a emergency policy meeting on Jan. 29 called to halt the sharp slide in the lira,
Despite opposition from Prime Minister Tayyip Erdogan, the bank raised its overnight lending rate to 12 percent from 7.75 percent, its one-week repo rate to 10 percent from 4.5 percent, and its overnight borrowing rate to 8 percent from 3.5 percent.
All were much sharper moves than economists had forecast and promoted by fears for the tumbling lira currency.
The moves resulted in an increase in the average cost of funding for banks to 10.09 percent as of Thursday from 7.26 percent.
All of the 16 economists in a Reuters poll this week estimate the bank will keep its key rates on hold at the next meeting on Tuesday.
"The bank will maintain its tight policy stance but will not take a new step after it raised its key rates more than expected in its last interim meeting and simplified its operational framework," said ING Bank economist Muammer Komurcuoglu.
Markets were firm on Friday. The lira traded at 2.1880 to the dollar, from 2.1968 late on Thursday. It touched a record low against the dollar at 2.39 on Jan. 27.
The main Istanbul share index rose 0.96 percent to 64,380.68 points, broadly in line with the wider emerging markets index, which rose 0.66 percent.
The yield on the 10-year benchmark bond fell to 10.10 percent from 10.17 at Thursday's close.
The bank increased rates after the lira repeatedly tumbled to record lows in fallout from a corruption scandal which shook the political establishment and dented investor appetite.
When the corruption scandal erupted on Dec. 17, the currency was already under pressure from the global impact of a cut in U.S. monetary stimulus, which has seen Turkey enjoy an inflow of cheap foreign capital to fund its gaping current account deficit.
The central bank long resisted an outright rate hike because of vehement opposition from Erdogan, who is eager to protect economic growth, particularly in the run-up to elections.
Instead the bank tried to support the currency by burning through foreign exchange reserves and squeezing borrowing costs on the margins, but the approach was abandoned after the currency slid to record lows.
Turkey will hold local elections on March 30 and presidential elections in August.
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