Turkish assets down on oil, profit taking

The Turkish lira weakened against the dollar on Friday on worries about the impact on its economy of rising oil prices and an easier monetary policy outlook, while inflation fears pushed bond yields more than 15 basis points higher. A surge in oil, with Brent crude at around $124 a barrel on Friday and heading for its fifth successive weekly gain, will intensify pressure on Turkey, which imports all its energy needs and is struggling with a record current account deficit.
Higher oil prices will also hit efforts to curb double-digit inflation. By 1531 GMT, the lira traded at 1.7672 versus the dollar, weaker than 1.7638 in late trade on Thursday. "The lira's weakening has been triggered by the central bank's policy easing move. It was then accelerated by rising oil prices, as this can widen the current account deficit which is already at alarming levels," said Erdinc Mogol, manager of the treasury marketing unit at Akbank.
Turkey's central bank unexpectedly cut its lending rate by 100 basis points on Tuesday and raised the amount of lira it would provide through one-month repo auctions, which increases liquidity and can weaken the currency. Against its euro-dollar basket the lira slipped to 2.0733, its weakest since late January, from 2.0540 late on Thursday. Turkey's current account deficit, which reached nearly 10 percent of gross domestic product in 2011, is seen as making the economy highly vulnerable to external shocks. The government expects it to decline only to 8 percent this year. The central bank has relied on a mix of high reserve requirement ratios and a low policy rate to stop any further widening in external imbalances, but cut its lending rate to 11.5 percent on Tuesday and increased monthly repo funding after signs the economy is starting to slow.
The yield on Turkey's two-year benchmark bond closed at 9.18 percent, from a previous close at 9 percent. Turkey's two-year benchmark yield hit 8.88 percent, its lowest since October on Wednesday, on hopes the central bank would ease liquidity conditions again.
The Istanbul stock index closed 0.12 percent higher at 59,737.53 points, underperforming a rise of 0.76 percent in the MSCI emerging markets index. Shares of retail group Boyner Holding, which owns listed Boyner Magazacilik closed 2.65 percent up at 3.10 lira after it said it acquired 63 percent of Turkish retailer YKM for 190 million lira ($108 million), in Turkey's largest ever deal in non-food retail.