ISTANBUL: Turkish bond yields fell on speculation of a possible cut in one of the central bank's interest rates on Thursday, with most analysts expecting at least a less hawkish tone from the bank in a monthly statement due at around 1100 GMT.
The central bank's monetary policy committee meets on Thursday, and five out of 13 brokerages and banks polled by Reuters forecast a reduction on the upper side of the interest-rate corridor, the difference between its 5 percent overnight borrowing rate and its 11.5 percent lending rate.
That speculation pushed bonds higher, with the yield on the benchmark bond due March 5, 2014 falling to 7.78 percent by 0817 GMT from 7.83 percent a day earlier.
"We expect the tone of today's statement to be less hawkish, in line with the more favourable recent developments," said Benoit Anne, head of emerging markets strategy at Societe Generale.
"A further fall in inflation will open the door to easier monetary policy."
Central bank Governor Erdem Basci fuelled expectations of monetary policy easing earlier this month by saying the bank may cut its year-end 6.5 percent inflation forecast. A new forecast and quarterly inflation report is due on July 26. Consumer prices dipped 0.90 percent during June, much more than a Reuters' forecast of a 0.50 percent fall.
Downside inflation surprises and strong capital inflows had been seen encouraging the bank to tweak its policy but many economists say a lending rate cut could be premature because of global risks that argue against an easing of policy.
"We think it is too early for an easing move despite the recent deceleration in inflation and slowing credit growth and economic activity," said Societe's Anne, adding that he thinks the bank will wait for the publication of the new inflation report before signalling a switch in policy.
The lira firmed to 1.8020 against the dollar by 0737 GMT from 1.8030 on Wednesday. Against its euro-dollar basket the lira was steady at 2.0101.
"There is global interest in emerging markets. There is inflow into bonds and it is impacting the lira positively. Apart from a few market players many don't expect a change in today's monetary policy committee meeting," said one forex trader.
"If there isn't a change at the monetary policy committee meeting the lira will continue to appreciate," he said.
Istanbul's main share index rose 0.23 percent to 62,591.10 points, underperforming a 1.04 percent rise in the MSCI emerging markets index.
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