ISTANBUL: Turkish bonds and the lira firmed on Tuesday but with gains limited by caution ahead of Thursday's central bank rate-setting meeting where some economists say the bank could trim its lending rate.
Investor attention was also focused on US Federal Reserve Chairman Ben Bernanke's view on the US economy later on Tuesday.
The lira firmed to 1.8070 against the dollar by 0850 GMT from 1.8140 on Monday. Against its euro-dollar basket the lira was steady at 2.0154.
Some believe monetary policy easing is imminent in Turkey, following comments earlier this month from central bank Governor Erdem Basci that the bank may cut its year-end 6.5 percent inflation forecast in July.
"Markets are awaiting the monetary policy meeting now. Today's Bernanke speech is important, we will see a move in a narrow band and low volume," said one bonds trader.
The yield on the March 5, 2014, benchmark bond dipped to 7.93 percent from 7.96 percent on Monday.
The central bank injected 2.5 billion lira ($1.38 billion) into the market in a one-week repo auction on Tuesday, after making a 3 billion lira injection on Monday.
Some economists say the bank may consider narrowing the interest rate corridor. The corridor shows the difference between the central bank's overnight borrowing rate, now at 5 percent, and its lending rate, which is at 11.5 percent.
"As the central bank moved closer to its price and financial stability objectives, it has found itself in a much more comfortable position to ease monetary conditions, and it has begun to utilise the window for easing as evidenced by the drop in the effective funding rate," said Finansbank economist Inan Demir.
The bank is not expected to cut its main policy rate, the one-week repo rate, from its current record low of 5.75 percent.
Markets were also awaiting Bernanke's semi-annual Congressional testimony on Tuesday and Wednesday after weak US retail sales and a lower International Monetary Fund global growth forecast on Monday raised hopes of more monetary stimulus from the Fed.
Istanbul's main share index was up 0.21 percent at 62,808.46 points, underperforming a 0.73 percent rise in the MSCI emerging markets index.
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