ISTANBUL: Turkish bonds rose further and the lira weakened on Tuesday, responding to signals of sooner-than-expected monetary policy easing ahead of a gathering of central bankers and economists at Jackson Hole, Wyoming, this week.
Turkish central bank Governor Erdem Basci hinted at the weekend that the bank could gradually narrow the gap between its overnight borrowing and lending rates, now at 5 percent and 11.5 percent respectively.
The bank will have its next monetary policy meeting on Sept. 18.
"The possibility is strengthening for the central bank to lower the average funding cost below the rate corridor and for it to become permanent," said HSBC Bank strategist Fatih Keresteci.
"This is positive for bonds but negative for the lira."
Istanbul's main share index rose 0.62 percent to 66,348.82 points, outperforming a 0.36 percent fall in the MSCI emerging markets index.
Turkey's sole oil refiner Tupras, conglomerate Sabanci Holding and supermarket chain are expected to release their second quarter earnings on Tuesday.
Analysts said heightened speculation about a cut in the lending rate, which the market had anticipated towards the end of this year, would have an impact on the lira.
The lira weakened to 1.8026 against the dollar by 0747 GMT from 1.8009 on Monday, while the yield on Turkey's two-year benchmark bond fell to 7.62 percent from a close of 7.68 percent. It ended last week at 7.81 percent.
"The downward trend in bond yields will continue today with the impact from the central bank," said Denizbank bond trader Onur Bayol.
Other traders forecast the benchmark bond yield to fall as low as 7 percent in coming days with an increasing demand from banks for bonds after the remarks by the central bank chief signalling monetary policy easing.
"We should allow the lending rate to fall ... We will start to send a clear message of that from next month's policy meeting," Basci told reporters at a roundtable in Ankara.
At its last monetary policy meeting on Aug. 16, the central bank eased monetary policy slightly by raising the amount of lira reserves that commercial lenders can hold in foreign currencies and gold, and it gave its first clear signal that it could cut interest rates ahead as inflation falls.
US Federal Reserve Chairman Ben Bernanke will speak at the annual Jackson Hole meeting on Friday ahead of the Fed's Sept. 12-13 policy meeting, which could shed light on the Federal Reserve's future plans. That, in turn, could determine investors' appetite for riskier emerging markets, like Turkey.
The lira stood at 2.0271 against the euro-dollar basket.
Comments
Comments are closed for this article.