By Seda Sezer
ISTANBUL (Reuters) - Turkey's central bank cut interest rates for the fifth straight month on Tuesday, lowering its overnight lending rate by an expected 25 basis points days after a failed coup shook the country and briefly roiled its financial markets.
The bank's Monetary Policy Committee (MPC) said its promise to provide lenders with unlimited liquidity - a move designed to shore up investor confidence in the banking system in the wake of the attempted coup - had alleviated volatility in financial markets.
The lira <TRYTOM=D3> tumbled nearly 5 percent on Friday, its biggest one-day slide since the 2008 financial crisis, as foreign investors dumped the currency on news a group of soldiers had commandeered tanks, attack helicopters and warplanes in an attempt to topple the government.
The lira has since recovered, but some investors have voiced concern about the widening crackdown on the judiciary and civil service.
"The Turkish MPC's decision to cut its overnight lending rate by a further 25 basis points today suggests (it) views the market volatility stemming from Friday night's attempted coup -and growing concerns about political risk - as short-lived," said William Jackson of Capital Economics in a note to clients.
"Given today's move, it looks like monetary conditions will be loosened a little further in the coming months. But we remain concerned about how sustainable the easing cycle is."
The bank cut the highest of the multiple interest rates it uses to set policy to 8.75 percent. It left its benchmark one-week repo rate unchanged at 7.5 percent.
Eight of 19 economists in a Reuters survey had forecast a 25 basis point cut in the upper band, while six expected a cut of 50 basis points. The remaining five predicted no change.
"Recently, domestic developments have led to fluctuations in financial markets. The committee assesses that the recent liquidity measures have alleviated the volatility in financial markets," the bank's Monetary Policy Committee said.
"Market developments will be closely monitored and the necessary liquidity measures will continue to be taken to support financial stability."
The central bank has responded to the government's repeated calls for cheaper credit while presiding over a weakening lira currency and above-target inflation.
President Tayyip Erdogan, who favors consumption-led growth and whose status was reinforced by Friday's dramatic events, equates high borrowing costs with treason.
Before the central bank meeting, Economy Minister Nihat Zeybekci told Reuters he expected it to continue with "bold" rate cuts although he said he would understand if it took no action this time following the coup attempt.
He also said that the impact on the economy would quickly reverse, although some investors may not be so easily convinced.
Credit rating agency Moody's on Monday placed Turkey's bond ratings on review for downgrade, citing the need to assess the medium-term impact of the failed military coup on its economic growth, policymaking institutions and external buffers.
Following the interest rate decision, the lira was slightly weaker on the day, at 2.9835 from the previous session's close of 2.9755.
On Friday it touched 3.0514 in overseas trade, its weakest since January.
(Additional reporting by Nevzat Devranoglu; Writing by David Dolan; Editing by John Stonestreet and Hugh Lawson)