ISTANBUL: Turkey's lira rose on Monday on stronger global appetite for risk and expectations that local banking sector liquidity would remain tight, countering slightly worse than expected figures on Turkish economic growth.
Gross domestic product (GDP) growth slowed to 5.2 percent year-on-year in the fourth quarter, falling short of a Reuters poll forecast of 5.5 percent. But the data still showed the economy expanded 8.5 percent overall last year.
"After the Q4 2011 GDP data we preserve our 2012 GDP growth forecast at 2.0 percent. We do not think that the data contains any new information for the central bank and market players," wrote Ozgur Altug, chief economist at BGC Partners.
The Turkish Central Bank has tightened liquidity conditions and talked tough on inflation over the past two weeks due to concerns about the lira's strength, forcing it to ease up on moves to loosen policy and support a slowing economy.
An improved global tone, helped by strong data out of China and other major Asian exporters, helped the lira inch up on Monday, but investors remain nervous enough about its prospects to expect the bank to keep a strong rein on the amount of cash sloshing around the banking system.
"Following the central bank's recent decisions, we expect monetary conditions to remain tight for some time to come," said analysts at BNP Paribas.
By 0814 GMT, the lira traded at 1.7780 versus the dollar, up from 1.7857 late on Friday. Against a euro-dollar basket it was flat at 2.0782.
Still, the bank has also for the moment resumed cheaper one-week repo auctions after tightening borrowing costs through "exceptional" intraday repo auctions, where rates are normally several percentage points higher.
The bank held its usual cheaper one-week repo auction at a fixed-rate of 5.75 percent on Monday.
The two-year benchmark bond yield, however, rose to 9.36 percent from a previous close at 9.31 percent.
"Following the cheap lira funding by the central bank on Friday, bond yields dipped. If the lira doesn't depreciate significantly in the coming period, we expect the bank will continue to provide funds at 5.75 percent," said Tufan Comert, strategist at Garanti Securities.
"However, after recent hikes on natural gas and electricity prices, the inflation outlook has changed. This shows the central bank will keep the total lira funding low. Hence the decline in bond yields will be limited," Comert said.
Electricity prices were hiked an average 8.l percent from April 1, the Energy Market Regulatory Board said over the weekend. Energy Minister Taner Yildiz said separately natural gas prices were raised an average 18.72 percent from the same date, citing forex rates and oil price rises.
"The chances for the benchmark yield to decline below 9 percent is now quite restrained."
Istanbul's main stock index was up 0.43 percent at 62,693 points, in line with a 0.49 percent rise in the MSCI emerging markets index.