* Lira down 40 percent this year
* Government to announce medium-term programme on Thursday
* Rate hike alone not enough for markets, analyst says
* Lira has now surrendered gains from rate hike (Updates prices, adds analyst quote)By Behiye Selin Taner and Ali KucukgocmenISTANBUL, Sept 18 (Reuters) - Turkey's lira fell as much as2 percent on Tuesday, erasing all its gains since the centralbank's rate hike last week, as investors took a cautious tackbefore the government announces its three-year plan this week.Finance Minister Berat Albayrak has promised "realisticmacro targets" and "right action plans" in the government's newmedium-term economic programme, due on Thursday. He has alsopromised savings measures and making the fight against inflationand the current account deficit priorities.The lira has fallen 40 percent so far this year, battered byconcerns about the credibility of the central bank, giveninfluence from President Tayyip Erdogan.The bank last week raised interest rates by 6.25 percentagepoints, in an effort to tame double-digit inflation and put afloor under the lira. But after initially strengthening, thecurrency has given up most of the gains from the hike."Last week's rate hike is a first step but, if you want toimprove your credibility, it is a long-term process," saidGuillaume Tresca, senior emerging market strategist at CreditAgricole.On its own, higher rates are not enough to ensure asustainable strengthening in the lira, he said, adding that thegovernment needs to improve the fiscal and current accountdeficits and postpone large infrastructure projects.The lira stood at 6.4034 to the dollar at 1330GMT, weakening from a close of 6.3150 on Monday. The currencyweakened as far as 6.4620 earlier in the day, less than it wasjust before last Thursday's rate hike.Since gaining expanded executive powers in July, thepresident has tightened his grip on the economy and monetarypolicy, appointing his son-in-law, Albayrak, as finance ministerand taking charge of the sovereign wealth fund.
One analyst, who declined to be named, said sentiment wasalso hit by Erdogan's comments in the newspaper Hurriyet onMonday that authorities should look into members of the mainoppositionRepublican People's Party over its 28 percent stakein Isbank . Those comments triggered declines in Isbank shares and theIstanbul exchange's banking index .There was a wait-and-see mood in the market before themedium-term economic programme is released, the analyst said.If the lira remains weak, "it will create the perceptionthat the central bank rate hike was ineffective and this maylead to a further worsening," the analyst said. (Writing by Daren Butler; editing by David Dolan)
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