ISTANBUL: Turkey's lira weakened from this week's 2014 highs as expectations of interest rate cuts amplified the impact of an emerging-market sell-off. Speculation was rife that Turkey's central bank would cut interest rates when its monetary policy committee meets on Thursday.
The central bank raised rates sharply at the end of January to counteract an emerging-market sell-off that led the lira to plummet to record lows.
"While profit taking was broad based in emerging market universe, recent easing of liquidity conditions by CBRT (Turkey's central bank), expectations for rate-cut in MPC meeting next week and political uncertainties seem to have led to much sharper sell-off in the lira," a note from TEB-BNP Paribas said. Markets were looking to daily liquidity conditions to determine how committed the central bank is to tight policy, the bank said.
Turkey's central bank sets its four key interest rates monthly but can regulate the average rate banks pay to borrow money through one-week repo auctions, which it holds daily.
By making more money available at 10 percent, the central bank can reduce the average cost of funding for banks, now also at 10 percent.
Turkey's central bank was scheduled to release its latest monthly survey of business leaders' and economists' expectations at 1130 GMT.
Analysts said a decline in inflation expectations may also support the case for monetary easing. The lira slipped to 2.1032 against the dollar by 0654 GMT, compared with 2.0850 late on Thursday.
The main Turkish stock index was down 0.74 percent at 74,656.68, underperforming the broader emerging markets index , which was up 0.18 percent.
Turkey's 10-year benchmark bond yield rose 9.48 percent from Thursday's close of 9.38 percent.
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