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Turkey shares edge up, lira and bonds flat before meeting
January 22, 2013 / 8:49 AM / 5 years ago

Turkey shares edge up, lira and bonds flat before meeting

* Main rates seen on hold

* Lira, bonds flat

* Shares inch higher

By Nevzat Devranoglu

ISTANBUL, Jan 22 (Reuters) - Turkish shares edged higher while the lira and bonds traded flat as investors looked for direction from Tuesday’s central bank policy meeting, where some analysts expect a cut in the overnight borrowing rate.

In a Reuters poll, four of 11 analysts forecast a cut in the overnight borrowing rate - the lower end of the interest rate corridor - with all but one expecting a cut of 25 basis points. Other key rates were seen on hold.

Turkish assets have been boosted recently by a positive economic outlook and expectations of a sovereign rating upgrade.

By 0806 GMT, the Turkish currency was at 1.7621 per dollar , little changed from 1.7634 on Monday and off a 10-month high of 1.7513 which it hit last Thursday. Against its euro-dollar basket, the lira was steady at 2.0583, compared with 2.0580 on Monday.

“We do not think the level of the lira is strong enough to elicit an aggressive reaction from the central bank, but a measured 25 basis point cut to the lower end of the interest rate corridor is likely as a precaution against ongoing capital inflows,” TEB bank strategist Erkin Isik wrote in a note.

He said reserve requirement hikes on forex or lira deposits were also quite likely in order to control a recent acceleration in loan growth.

In December, the bank lowered its main policy rate for the first time in more than a year by 25 basis points, as falling inflation gave it room to step up its fight against a sharper-than-expected economic slowdown.

To narrow the current account deficit and reduce inflation, the central bank has employed a policy mix since late 2010 based on daily liquidity injections, an adjustable interest rate corridor - the gap between the overnight borrowing and lending rates - and a low policy rate.

Since the middle of 2012, the bank has been trying to stir up growth by boosting lira liquidity, but it has been cautious not to cut rates too aggressively to avoid a rise in inflation.

“A cut in the lower band (of the corridor) will limit the attractiveness of the lira. I don’t think the lira is yet at a level of excessive value,” said a treasury desk manager at one bank.

The main Istanbul share index rose 0.2 percent to 85,451 points, in line with a 0.21 percent rise in the global emerging markets index.

The yield on the two-year benchmark bond stood at 5.93 percent, little changed from 5.94 percent on Monday.

Fitch upgraded Turkey to investment grade in early November, and investors expect a second agency, probably Moody‘s, to follow suit. (Writing by Daren Butler; Editing by Nick Tattersall)

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