Turkish, South African central banks in focus; stocks at record high

Turkey's lira and South Africa's rand edged higher on Thursday ahead of their respective central bank meetings, while most other emerging market currencies rose on optimism over a bumper U.S. stimulus package.

Emerging market stocks raced to a third consecutive record high, as equities offered the best immediate returns amid ultra-low interest rates across the globe.

Global stocks also took positive cues from Wall Street after President Joe Biden's inauguration. Biden is expected to sign into effect a large stimulus package to support the economy.

The lira rose about 0.4% and is expected to gain further if the central bank holds lending rates at 17% as widely expected. Turkish President Tayyip Erdogan has repeatedly pushed for lower interest rates, which had increased inflation and crippled the lira over the past three years.

But the beginning of a hiking cycle last year had eventually supported the lira, helping it come off a series of record lows.

"We expect the monetary policy committee (MPC) to keep the policy rate unchanged at 17% today. Given the challenging inflation outlook, we think the policy rate should be higher in order to strengthen the attainability of the interim (inflation) target by end-2021," Credit Suisse analysts wrote in a note.

"But we do not think the MPC will deliver the required tightening unless there is significant market pressure".

South Africa's rand rose about 0.3%, with the central bank set to hold lending rates at record lows through 2021. The country has been struggling with a second wave of coronavirus infections, and an accommodative policy is expected to be in place to offset the pandemic's impact.

"We think that the MPC will prefer to wait and see how the economic data and the COVID-19 situation develop, especially as the MPC has repeatedly noted that monetary policy alone cannot support the economy," RBC analysts wrote in a note.

Turkish and South African stocks both touched record highs.

The outlook for emerging market risk assets has improved with the release of several coronavirus vaccines, as investors bet on a quick return to normalcy. Robust economic growth in China is also expected to benefit major commodity exporting countries.

Russia's rouble lagged its peers in Europe, the Middle East and Africa after a fall in oil prices.

Russian stocks fell 0.9% from near record-high levels, as the recent arrest of Kremlin critic Alexei Navalny raised concerns over sanctions from the west.