The Turkish Lira climbed against the U.S. dollar in the European session on Thursday, after Turkey's central bank unexpectedly hiked the key lending rate and the one-week repo rate amid the deterioration in economic activity and risks to the inflation outlook.

The Monetary Policy Committee, led by Governor Murat Cetinkaya, raised the key lending rate, known as the Marginal Funding Rate, to 8.5 percent from 8.25 percent. The one-week repo rate was increased to 8 percent from 7.5 percent.

The borrowing rate was left unchanged at 7.25 percent.

Economists had expected the central bank to leave all rates unchanged.

The Lira climbed to a 2-day high of 3.3685 against the greenback, off its early record low of 3.4212. If the Lira extends rise, 2.9 is possibly seen as its next resistance level.

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