* Turkish rate hike next week may be on the cards - analyst
* Euro strength helps E.European currencies
* Dollar slides ahead of Fed meet
Dec 16 (Reuters) - Turkish lira strengthened on Wednesday after the central bank governor vowed to pursue a tight monetary policy next year to reign in high inflation, while other emerging market currencies were boosted by a weaker dollar.
The lira rose 0.6% to trade at 7.7812 per dollar, hitting its highest level since in almost two weeks.
Turkey’s central bank governor Naci Agbal said price stability would be a priority for the bank’s policy decisions and that the lira’s exchange rate continued to create an upside risk on inflation.
Last month, the bank hiked rates by 475 basis points to 15%, but surging prices in November pushed annual inflation up to 14%, putting more pressure on the bank that holds another rate-setting meeting next week.
“An interest rate hike next week might be on the cards, which is something the market is taking as a positive signal,” said Jakob Christensen, head of EM research at Danske Bank.
Signs of market friendly reforms under President Tayyip Erdogan helped the lira rally in November, but the currency is down nearly 24% this year due to a spike in inflation, worries about foreign reserves as well as the recent U.S. sanctions imposed on Turkey.
The MSCI’s index for emerging market currencies jumped 0.3% to its highest level since April 2018 as the dollar lost ground, with investors expecting dovish signals from the U.S. Federal Reserve when it concludes its two-day policy meeting later in the day.
The rouble was steady at 73.29 per dollar, settling after a hefty sell-off and recovery earlier in the week.
The rouble could strengthen to 73 versus the greenback if updated economic forecasts from the Fed inspire markets and support risk appetite, analysts from Sberbank CIB said in a note.
Eastern European currencies rallied versus the euro, which broke above $1.22 for the first time in more than two years after data pointed to better-than-expected business activity in the bloc this month.
The Hungarian forint rose 0.3% after the central left interest rates steady on Tuesday, as expected, and flagged that it would remain cautious in its monetary policy going forward.
An index of emerging market stocks jumped 0.8%, holding near a three-year high on hopes of a vaccine-led economic recovery and progress in fresh U.S. stimulus talks.
“We have been on a gradually improving economic trajectory with global macro momentum increasing which has led investors to be more confident towards risk assets,” Christensen said.
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For RUSSIAN market report, see (Reporting by Shashank Nayar and Sruthi Shankar in Bengaluru; Editing by Amy Caren Daniel)