ISTANBUL: The Turkish lira strengthened slightly against the dollar on Tuesday, a day after the central bank said it would sell a maximum $50 million in its daily forex auctions, and bond yields declined in early over-the-counter trade while investors awaited the central bank's policy announcement for next year.
Turkish Central Bank Governor Erdem Basci is due to announce at 0800 GMT the bank's monetary and exchange rate policy for next year. The bank is expected to stick to its unorthodox policy mix and inflation targets in 2012.
By 0709 GMT, the lira traded at 1.8886 versus the dollar compared with 1.8910 on Monday afternoon. The currency weakened 0.6 percent versus the dollar last week, mainly due to lower-than-expected central bank forex auctions.
The central bank said on Monday it will sell a maximum amount of $1.35 billion in daily forex auctions until its next monetary policy meeting. But if there are no exceptional conditions affecting financial and price stability, the central bank said it would limit daily sales to $50 million.
After the announcement, the lira weakened to as much as 1.8975 versus the dollar.
"The announcement of the (central) bank about the changes to the daily forex auctions had little impact on the lira, amidst very tight liquidity," wrote Erkin Isik, an emerging markets analyst at TEB-BNP Paribas.
Against its euro-dollar basket, the lira traded at 2.1784, compared with a previous close of 2.1797.
The yield on Turkey's new benchmark bond maturing on Dec. 4, 2013 stood at 10.39 percent in early over-the-counter trade versus a previous close of 10.51 percent.
"In line with its slightly more hawkish rhetoric in the monetary policy committee meeting last week, the Central Bank continued to tighten the lira liquidity by opening 5 billion lira ($2.64 billion) weekly repo against 6 billion lira redemption," Isik said.
"The bond market will see if there is any material change to the monetary policy framework in the Central Bank's announcement today."
Despite the current steadiness due to thin volumes, yields could increase in January as the Turkish treasury has a heavy volume of redemption, analysts said.
The Turkish treasury is planning a debt redemption of 17.8 billion lira ($9.37 billion) in January versus a domestic borrowing of 15 billion lira through six auctions.
Istanbul's main share index closed 1.09 percent up at 52,517.25 points, outperforming the MSCI emerging markets index, which was down 0.01 percent.
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