ISTANBUL: The Turkish lira traded slightly weaker and bond yields edged down on Thursday as investors focused on decreasing expectations for inflation and looked to the central bank to cut interest rates.
Shares weakened slightly due to investor caution ahead of the outcome of the European Central Bank policy meeting.
By 0833 GMT, the lira traded at 1.8115 versus the dollar , easing from 1.8080 late on Wednesday. It weakened at 2.0398 versus a euro-dollar basket from 2.0374.
"The lira is weakening due to the prospects of a less hawkish stance from the central bank. As inflation seems to be on track, the bank wouldn't support the lira aggressively. A slight weakening of the lira is welcomed in order to narrow the trade deficit," said Bilge Gonen, manager of the forex desk at Eurobank Tekfen.
"In the short term the lira could initially weaken to 1.8250 against the dollar," Gonen said.
Expectations that the central bank will narrow its interest rates corridor by reducing the overnight lending rate have been reinforced by a more favourable inflation outlook after lower-than-expected June CPI data this week.
The lira hit a two-week low of 1.8340 versus the dollar on June 28, after central bank governor Erdem Basci said the bank could revise down its year-end inflation forecast of 6.5 percent if commodity prices remain low, fuelling expectations of an easing in the bank's tight monetary stance.
The yield on Turkey's two-year benchmark bond fell to 8.15 percent, close to its lowest since September 2011, down from a previous 8.17 percent.
"Buying in the bond market has increased after the positive inflation data. We expect the benchmark yield to move between 8.30-8.05 percent intraday in line with the lira's trend," wrote analysts at Halk Invest.
"The benchmark yield broke down important resistance levels. If current conditions continue in the markets, we think investors will continue to buy Turkish bonds and the benchmark yield can hit levels below 8 percent," they said, adding investors were monitoring the ECB policy meeting.
The ECB is due to announce its decision at 1145 GMT, followed by a news conference by President Mario Draghi.
Istanbul's main share index was 0.06 percent lower at 62,946 points, in line with a decline of 0.15 percent in the MSCI emerging markets index.
Comments
Comments are closed for this article.