ISTANBUL: The Turkish lira made limited gains on Wednesday, a day after Turkey's central bank kept its borrowing rate unchanged, as the Bank of Japan's decision to ease its policy triggered a rally in riskier assets while bonds were flat after a recent rebound.
The Bank of Japan eased monetary policy on Wednesday by boosting asset purchases, as slowing global demand and heightening tensions with China hurt the chances of a near-term recovery in the export-reliant economy.
By 0915 GMT, the lira firmed to 1.7933 against the dollar , from 1.7958 late on Tuesday. Against its euro-dollar basket, it firmed to 2.0651, from 2.0707.
"The lira firmed especially versus the euro-dollar basket following Turkey's central bank rate decision and the Bank of Japan (BOJ) move this morning," said a forex trader of a bank in Istanbul.
At its monthly policy meeting on Tuesday, Turkey's central bank cut its overnight lending rate, the upper limit of the interest rates corridor, by a higher-than-expected 150 basis points to 10 percent. It also raised the reserve option coefficients by 0.2 points.
The central bank kept its main policy rate, the one-week repo rate, unchanged at 5.75 percent, and its overnight borrowing rate at 5 percent.
Analysts previously said investors' closing their short lira positions after the central bank kept the bottom end of the interest rate corridor unchanged, has supported the lira.
"However, the low level of the average lira funding rate and expectations that the central bank will adopt growth-friendly measures in the upcoming period don't buoy the lira," the trader said.
As the central bank has been providing cheap lira since June, the average lira funding rate fell to 6.15 percent on Wednesday, from around 11 percent in June.
Turkey's two-year benchmark bond rate stood at 7.30 percent, a touch down from a previous close at 7.32 percent.
Since late August, the two-year bond yield fell around 50 basis points and hit 7.15 percent, its lowest level since January 2011, earlier last week.
It rose again as investors started to sell to take profits and due to the heightened inflation worries resulting from the lira's weakening and the rise in commodity prices.
Istanbul's main share index was down 0.51 percent at 67,231 points, underperforming a 0.49 percent fall in the MSCI emerging markets index.
Turkish markets shrugged off the rating agency Standard & Poor's report saying the conflict in Syria could potentially increase the credit rating risks of neighbouring sovereigns.
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