Turkish assets up, c.bank inflation report eyed

Wed Apr 25, 2012 5:09am EDT

Related Topics

* Lira up on tightening prospects, technical downside in dlr-lira rate

* Bonds yields down after successful debt auctions

* Shares up on global risk-on mode, Garanti Q1 net profit beats f'casts

ISTANBUL, April 25 (Reuters) - The Turkish lira strengthened and bond yields fell on Wednesday, a day after the treasury held three successful debt auctions and as investors awaited the central bank's quarterly inflation report on Thursday for signs of a more hawkish policy.

Shares traded stronger than the emerging markets index as higher than expected corporate results abroad underpinned investors' appetite for riskier assets.

By 0756 GMT, the lira had firmed to 1.7760 versus the dollar, compared with 1.7821 late on Tuesday. Against a euro-dollar basket, the lira traded at 2.0610, stronger than 2.0677.

"The prospects that the central bank will announce on Thursday further monetary tightening and new adjustments in the liquidity management are supporting the lira," said a forex trader.

The Turkish Central Bank will announce its quarterly inflation report at 0700 GMT on Thursday.

Central Bank Governor Erdem Basci said on April 21 the bank would prefer to change its policy stance rather than revise its inflation forecast of 5 percent, underlining the hawkish tone the bank has adopted since its March meeting.

The bank operates a complex policy mix of daily liquidity injections, a low policy rate and an interest rate corridor - an adjustable gap between its overnight borrowing and lending rates. It also provides smaller amounts of lira at more costly rates when the lira comes under pressure.

"The focal point of CEEMEA markets for the rest of the week will be Turkish Central Bank's inflation report, which is likely to show CPI growth should start declining as early as May but to reach the 5 percent target only in mid-2013," wrote analysts at BNP Paribas.

"(The central bank) has been providing just enough lira liquidity at the repo auctions to bring down the average funding cost close to 8 percent. However, this generous liquidity is likely to persist only as long as the lira appreciates so that their inflation fighting efforts are not undermined," analysts said.

Turkish consumer prices rose 10.43 percent in March, more than double the central bank's year-end target of 5 percent.

Investors were also awaiting a speech from Basci at 1030 GMT on Wednesday.

"The dollar-lira rate indicates a technical downside trend. We think the first important level will be 1.7750. If the lira firms below this level, it can technically strengthen further towards 1.75," said Fatih Keresteci, a strategist at HSBC.

"Turkish markets will trade in a cautious optimistic trend due to the positive risk sentiment in global markets after Apple's results," Keresteci said. Apple Inc's quarterly results beat Wall Street estimates on stronger-than-expected demand for the iPhone.

Turkey's two-year benchmark bond yield stood at 9.40 percent, down from a previous close at 9.45 percent. The yields declined slightly the previous day after successful debt auctions.

The Turkish Treasury raised 2.5 billion lira on Tuesday by selling three bonds maturing in 11 months, two and 10 years' time, and at lower yields than forecast.

"The effect of yesterday's successful debt auctions would continue on the secondary market," Keresteci also said.

Istanbul's main stock index was 0.79 percent up at 60,175 points, outperforming a 0.16 percent rise in the MSCI emerging markets index.

Shares in Turkish lender Garanti, part-owned by Spain's BBVA, was 0.6 percent up at 6.74 lira after it reported that first quarter net profit rose 0.8 percent to 861.7 million lira ($483.80 million), beating a Reuters poll for a net profit of 824 million lira. (Writing by Seltem Iyigun; Editing by Hugh Lawson)

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