ISTANBUL: Turkey's lira firmed against the dollar on Tuesday after the central bank said a weak currency risked stoking inflation, fuelling expectations for tighter monetary policy.
Volumes were thin, with Tuesday the last full trading day of the week before markets close early on Wednesday for a long holiday for Eid Al Fitr, marking the end of Ramadan, the Muslim month of fasting.
The lira was at 1.9293 to the dollar at 0910 GMT compared to 1.9333 on Monday evening.
In its report on July price developments on Tuesday, the central bank said it expected inflation to show a downward trend in the coming months but said the effects of a depreciating lira had started to be felt in core inflation indicators.
"(The central bank) is unlikely to ease lira liquidity conditions anytime soon, due to upside risks on inflation expectations and weak currency," Erkin Isik, analyst at TEB, wrote in a research note.
The lira has fallen by around 7 percent against the dollar in the last three months.
The central bank injected 4 billion lira ($2.1 billion) into the market in a one-week repo auction on Tuesday at a fixed simple rate of 4.5 percent.
The yield on Turkey's 10-year bond rose to 8.97 percent from 8.68 percent late on Monday.
The main Istanbul share index fell 0.42 percent to 74,020 points, outperforming the wider emerging markets index which fell 0.71 percent. The Istanbul index has fallen sharply since all-time highs of above 93,000 seen in May.
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