ISTANBUL: The Turkish lira firmed against the dollar after the central bank intervened directly in the forex market on Monday, a day after the bank sold around $3 billion in direct intervention and a forex-selling auction.
Bond yields declined as liquidity tightened and investors looked towards December inflation figures due on Tuesday
The lira firmed as far as 1.8802 against the dollar during the intervention from 1.8950 beforehand. It stood at 1.8876 at 0911 GMT.
It hit a record low level of 1.9215 in late trade last Wednesday due to concerns about monetary policy measures and ended 2010 some 22 percent weaker on the year against the dollar.
The central bank also intervened directly in the forex market on Friday, selling nearly $2 billion, and sold another $750 million in an auction, boosting the lira as far as 1.8510 against the dollar.
"We are in fact puzzled by Friday's sizeable intervention; the (central) bank's usual rationale for interventions - volatility - does not seem to apply to Friday's situation as the lira had traded in a narrow range between 2.1950 - 2.2020 against the currency basket ahead of the intervention. So we are not exactly sure why the Bank chose to intervene on Friday," wrote analysts at Finansbank in a note.
The Turkish lira traded at 2.1648 against the euro-dollar basket, after firming as far as 2.1296 and compared with a previous close of 2.1622.
The central bank said on Monday it will hold a one-week intraday repo auction instead of its regular one-week fixed-rate repo auction.
Central Bank Governor Erdem Basci said last week the bank could hold intraday one-week repos within the framework of the bank's open market operations strategy on "exceptional days". He also said that the bank may sell foreign currency directly on such days without defining exceptional days.
The yield on Turkey's benchmark bond maturing on Dec. 4, 2013 stood at 11.17 percent, compared with a previous close of 11.48 percent in extremely thin trading.
"As a reaction to the depreciation in the lira, the central bank tightened liquidity conditions further ... In due course, the benchmark bond yield surged to 11.5 percent, amidst light trading volume," wrote Erkin Isik, a strategist at TEB-BNP Paribas.
"December inflation and the central bank's meeting tomorrow (with economists) will be important. For inflation, the market consensus is already for the annual rate to elevate slightly above 10 percent, but markets are unlikely to tolerate a surprise on the upside from there," he added.
Nationwide inflation data for December will be released on Jan. 3 at 0800 GMT by the Turkish Statistics Institute.
The central bank said on Monday it expects inflation to be somewhat above 10 percent at the end of 2011.
Istanbul's main stock index was up 0.27 percent at 51,407 points, outperforming the MSCI emerging markets index , which was down 0.22 percent.
"For the day ahead, we expect Turkish stocks to open cautiously on light volume with PMI and preliminary exports as market-moving data," wrote analysts at Alkhair Capital.
Turkish economy minister said on Monday Turkey's December exports rose 4.5 percent to $12.1 billion.
The HSBC Manufacturing Purchasing Managers' Index (PMI) dipped to 52.0 points in December, from 52.3 points in November.
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