ISTANBUL: The Turkish lira eased along with other emerging currencies but was underpinned by expectations that central bank policy will stay tight, while bonds rose on hopes of more monetary support from the US Federal Reserve.
Central Bank Governor Erdem Basci said in a speech earlier in the day that the bank would work to eliminate inflation risks.
By 1419 GMT, the lira traded at 1.7938 versus the dollar, down from 1.7922 on Thursday. Against its euro-dollar basket it eased to 2.0705 from 2.0671.
"The lira weakened in thin trade after the negative US data..., in line with other emerging currencies. But the central bank's comment remains supportive for the lira," said a forex trader at a bank in Istanbul.
US payrolls grew by 120,000 in March, far below the expected gain of 203,000 jobs.
Inflationary pressures in Turkey rose after recent price hikes in the energy sector, which are expected to boost April inflation by 0.5 percentage points.
Year-end inflation expectations have jumped to 7.47 percent in April from a previous 7.22 percent, according to the biweekly survey of the central bank.
"Probably ongoing domestic and electricity price increases have started to be factored in. We expect to see further upward revisions in inflation forecasts," wrote Ozgur Altug, chief economist at BGC Partners, in a note.
Annual inflation stood at 10.43 percent in March, almost double that of the bank's year-end target of 5 percent and way above its year-end forecast of 6.5 percent, fuelling expectations of further tightening from the bank.
LIQUIDITY BOOST?
Aiming to support the local currency, the central bank cut liquidity in the markets by decreasing total lira funding to around 42 billion lira on Thursday from around 50 billion lira at the beginning of March.
Turkey's two-year benchmark bond yield closed at 9.32 percent, down from a previous close at 9.38 percent.
"The negative US data encouraged talk of another round of quantitative easing by the US Federal Reserve, pushing investors to buy bonds," said a fixed income trader of a big local bank.
The central bank has sought to defend the lira while also keeping inflation and a huge current account deficit in check and supporting a slowing economy, using a complex policy mix based on variable daily injections of lira funding, a flexible corridor between base lending and borrowing rates and high bank reserve requirements.
Deputy Prime Minister Ali Babacan, who also oversees the economy, said on Friday the current account deficit will remain high in 2012, even if it is not as high as in 2011. His comments had no impact on the markets, traders said.
Istanbul's main stock index closed down 1.81 percent at 60,939 points, lagging a 0.24 percent decline in the MSCI emerging markets index.
"The index fell after the lower-than-expected US data. The fall accelerated after the index broke (through) the support level of 61,600. There is a high potential for the index to drop further," said Yunus Kaya, equity analyst at Gedik Investment.
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