Turkey lira eases, bond yields fall on less hawkish central bank view

ISTANBUL: The Turkish lira eased versus the dollar and bond yields fell on Friday as the central bank's less hawkish than expected statement a day earlier boosted the prospects of the bank opting for a rate cut in the period ahead.

By 1130 GMT, the lira traded at 1.8080 per dollar , weaker than 1.8028 late on Thursday. Against a euro-dollar basket, the lira was flat at 2.0373.

"The lira eased versus the dollar as investors bet on a rate cut in the coming period after the central bank comments. We also see local companies buying dollars when the dollar-lira trades around the 1.80 level," said Erdinc Mogol, manager at the treasury marketing unit at Akbank.

Turkish companies buy dollars to pay their import bills.

At its monthly policy meeting, Turkey's central bank kept interest rates steady on Thursday, opting to continue using liquidity management tools to curb inflation and support the lira while signalling a slightly less aggressive stance against inflation than previously.

Turkey's central bank is using a complex monetary policy mix to support the lira and dampen inflation pressures, based on variable daily injections of lira funding, a flexible corridor between lending and borrowing rates, and high bank reserve requirements.

A forex trader said some investors also were selling lira for profit-taking due to the deterioration in risk sentiment in global markets after ratings agency Moody's downgraded 15 of the world's biggest banks on Thursday.

The yield on two-year benchmark bond fell to 8.85 percent, from a previous close at 8.94 percent.

"Expectations for less tight liquidity and a further rate cut from the central bank supported the bond market," a fixed-income trader said.

The central bank also raised the upper limit on lira required reserves that may be held in forex and gold, in a move seen by analysts as lowering banks' funding costs, allowing them to buy more bonds.

The benchmark yield fell to 8.92 percent, the lowest since the end of February, after Moody's raised Turkey's sovereign debt rating by one notch to Ba1 from Ba2 on Wednesday.

Istanbul's main stock index was 0.03 percent down at 60,420 points, outperforming a 1.56 percent decline in the MSCI emerging markets index.

Turkey's Istanbul Stock Exchange said on Friday that the closing time for the country's main stock index will be pushed back by 10 minutes to 1440 GMT from the current 1430 GMT from July 16.