ISTANBUL: The Turkish lira held its ground versus the dollar while bonds inched down on Tuesday as the central bank cut the amount of liquidity it provided to the market through a cheap repo auction.
Turkish shares were trading higher, outperforming the emerging markets index.
By 0744 GMT, the lira traded at 1.8252 versus the dollar , only slightly weaker than 1.8221 late on Monday. Against its euro-dollar basket the lira firmed to 2.0530 from 2.0548.
The central bank injected 1 billion lira ($546.66 million) into the market in a one-week repo auction at a rate fixed at 5.75 percent, while a 3 billion lira one-week repo matures on Tuesday. That effectively tightens the supply of lira.
"Lira trade is following the trend in global markets. 1.8315 and 1.84 are important levels to monitor on the upside for the dollar-lira. On the downside 1.81 will be watched," said a forex trader.
The central bank has been using a complex mix of monetary policy since late 2010, based on variable daily injections of lira funding, a flexible corridor between lending and borrowing rates and high bank reserve requirements to dampen inflation, rein in growth to more comfortable rates and decrease the current account deficit.
The yield on Turkey's benchmark bond maturing on March 5, 2014, inched down to 9.08 percent from a previous close at 9.11 percent.
"Bond yields fell yesterday following the lira's strengthening. We expect this trend to continue today as well. The prospect of the central bank not applying extra tightening as long as the lira does not weaken significantly is supporting the bond market," said Tufan Comert, strategist at Garanti Securities.
"However, we think the fall in bond yields would be limited due to the high funding costs of banks," Comert said.
Istanbul's main stock index was 0.81 percent higher at 57,973 points, outperforming a 0.49 percent decline in the MSCI emerging markets index.
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