ISTANBUL: Turkish bond yields inched down on Thursday on prospects that the central bank will loosen monetary policy at its meeting on Sept. 18, while the lira and stocks were steady.
By 1011 GMT, the yield on Turkey's two-year benchmark bond was at 7.56 percent, down from a previous close at 7.60 percent.
"Bonds are firm as it's now pretty clear that the Turkish central bank will reduce the upper limit of the interest rate corridor at the September policy meeting," said Tufan Comert, strategist at Garanti Securities.
"We expect a 50 basis points cut this month and a total of 150 basis points cut by the end of the year," he said.
Turkish markets were cautious ahead of an expected announcement from European Central Bank chief Mario Draghi on a framework for a new bond-buying programme to help bring down the borrowing costs of Spain and Italy.
The yield on Turkey's benchmark bond has fallen around 25 basis points since late August after Central Bank Governor Erdem Basci hinted the rate cut process could start soon. Since the start of 2012 the yield has fallen around 360 basis points.
The central bank's overnight borrowing rate currently stands at 5 percent and the lending rate at 11.5 percent, with the benchmark repo rate at 5.75.
It eased policy slightly at its August monetary policy meeting by raising the amount of lira reserves that commercial banks can hold in foreign currencies and gold.
"The only risk to the decline of bond yields would be a tax increase by the government as this would worsen the inflation outlook," Comert said.
Turkish annual inflation stood at 8.88 percent in August, from above 11 percent in April.
Finance Minister Mehmet Simsek told Reuters late on Wednesday that Turkey was highly likely to miss its budget deficit target of 1.5 percent of national output this year as growth slows and tax revenues fall but is looking at corrective measures including spending controls.
Analysts expect tax hikes in the fourth quarter including on cigarettes and alcohol.
The lira was flat at 1.8182 against the dollar while it weakened to 2.0567 against its euro-dollar basket , from 2.0555.
Istanbul's main share index was 0.15 percent up at 67,655 points, underperforming a 0.37 percent rise in the MSCI emerging markets index.
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