Turkish lira firmer on Central Bank auction comment

ISTANBUL: The Turkish lira firmed on Friday after the central bank governor said the volume of forex-selling auctions could be increased if needed, while shares fell as euro zone worries undermined sentiment.

After the Governor Erdem Basci's statement, the lira strengthened to 1.7770 versus the dollar from 1.7850 earlier. The currency closed at 1.7935 on Thursday. So far this year, the lira lost around 12 percent against the greenback.

"We expect the lira to move between 1.7950-1.7650 versus the dollar," said Basar Yildirim, assistant manager of research at TSKB.

The average compound yield on the benchmark May 15, 2013 bond, which dipped below 8 percent yesterday, its lowest level since February, stood at 8.09 percent. It closed at 8.12 percent on Thursday.

Bonds have been supported this week by comments from Basci, who said on Monday the bank could cut rates again following this month's surprise rate cut if downside risks threaten economic growth.

"The global volatility is affecting the Turkish bond market. As much as allowed by external developments, the decrease in yields should continue. I think the yield will test again below 8 percent today. Some market participants think that it can even touch 7.80 percent," said a bond trader at a bank in Istanbul.

Domestic confidence had been boosted on Thursday when Basci was reported as saying the current account deficit could shrink to $5 billion in July and $27 billion in the second half.

Deputy Prime Minister Ali Babacan said separately that the deficit would not deteriorate further and would not reach 10 percent of gross domestic product.

The IMF sees Turkey's current account deficit to GDP ratio at end-2011 at 10.5 percent.

The main Istanbul share index was down 1.77 percent to 51,097 points, underperforming the MSCI emerging markets index, which fell 0.37 percent.

Equities ended 3.4 percent higher on Thursday, on the back of global gains triggered by strong US jobs data.

Copyright Reuters, 2010