ISTANBUL: The Turkish lira slipped against a broadly stronger dollar on Wednesday, but its losses were limited as expectations that the central bank will stick to a tight monetary policy to cap inflation strengthened after its latest report on prices.
By 0812 GMT, the lira traded at 1.7896 versus the dollar, weaker than 1.7778 late on Tuesday. Against a euro-dollar basket it stood at 2.0748 compared with 2.0726 on Tuesday.
"The dollar gained globally after the release of the US Federal Reserve minutes. However, expectations of a further liquidity tightening by the central bank limited the lira's losses. The lira still trades stronger than its peers against the euro-dollar basket," said a forex trader of one bank.
The dollar climbed after the minutes of the last Federal Reserve rate-setting meeting showed only two of its 10 policymakers saw a need for another round of monetary stimulus as the US economy is gradually recovering.
But the prospects of Turkey's Central Bank keeping liquidity tight strengthened after it said on Wednesday that electricity and gas price hikes would increase inflation by 0.5 percentage points in April, according to its monthly statement on price developments.
The Energy Market Regulatory Board raised electricity prices by an average of 8.l percent from April 1. Energy Minister Taner Yildiz said separately that natural gas prices would go up by an average 18.72 percent from the same date, citing forex rates and oil price rises.
The central bank told economists at a meeting on Tuesday that it would rather adjust its monetary stance than revise up its inflation target, economists who attended the meeting told Reuters.
Turkey's inflation dipped to 0.41 percent month-on-month in March, but remains near three-year highs on an annual basis and, given other expected pressures on prices, was seen as unlikely to change the bank's broader hawkish tone.
At its monthly policy meeting in March, the central bank adopted a hawkish bias citing inflationary pressures and sharply tightened lira liquidity through expensive intraday repo auctions from March 22 to 29 to avoid lira depreciation.
Turkey's two-year benchmark bond yield stood at 9.36 percent, virtually unchanged from a previous close at 9.34 percent.
The benchmark yield declined as far as 9.25 percent following lower-than-expected inflation data on Tuesday but reversed its gains after the central bank's comments.
"Yields rose yesterday on tightening expectations from the central bank. Today we expect the benchmark yield to move between 9.1-9.5 percent," wrote analysts at TEB.
Istanbul's main stock index was 0.83 percent down at 62.755 points, slightly outperforming a 0.97 percent decline in the MSCI emerging markets index.
"First resistance level for the main Istanbul Stock Exchange (ISE)-100 is at 63,000 while the next one stands at 61,700," wrote analysts at Alkhair Capital.
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