The Turkish lira weakened 0.6 percent versus the dollar on Friday from a week earlier due to lower-than-expected central bank forex auctions while shares closed 0.69 percent up following the recovery of global risk sentiment after positive US data.
The Turkish Central Bank sold just $50 million in its forex-selling auction on Friday, lower than the original amount of $1.35 billion it announced as a maximum in the morning. After the announcement the lira weakened as far as 1.8905 versus the dollar from 1.8834 beforehand. By 1512 GMT, the lira traded at 1.9005 versus the dollar, weaker than 1.8890 on Thursday afternoon.
"The main reason behind the lira's weakening was the fact that the central bank opted to sell lower amounts of dollars it announced during the week. Besides, we didn't see any significant recovery of global risk sentiment," said a treasury marketing unit manager of a bank. "I don't expect any major changes in the central bank's policy for 2012. Further moves will depend on global risk sentiment. Actually, the central bank cannot do anymore than manage expectations," he added.
Central Bank Governor Erdem Basci is due to announce on December 27. the bank's monetary and exchange rate policy for next year. The bank is expected to stick to its unorthodox policy mix and inflation targets in 2012. On Thursday, the Turkish Central Bank said it would sell a maximum $1.7 billion in its daily forex-selling auctions on Friday and Monday.
Against its euro-dollar basket the lira traded at 2.1887, compared with a previous close of 2.1778. Istanbul's main share index closed 0.69 percent at 51,948.62 points, underperforming the MSCI emerging markets index, which was up 0.9 percent. "Shares are moving in tandem with the global markets. Better-than-expected US data improved the sentiment. However, this increase won't be permanent, there is no fundamental reason which would trigger a rise in shares," said Aydin Sozubir, research manager at Tacirler Securities.
The yield on Turkey's new benchmark bond maturing on December 4, 2013 closed at 10.43 percent, down from a previous close of 10.46 percent. Volumes continued to be extremely thin without any transaction in the afternoon. Markets shrugged off comments from Deputy Prime Minister Ali Babacan, who also oversees the economy, saying the Turkish Central Bank may reduce reserve requirement ratios (RRRs) to support the banking sector if necessary.
Markets also ignored Turkish Banks Association presentation, which said recent measures introduced by the central bank had created an additional cost of 8 billion lira ($4.23 billion) for the banking sector. Following two years of strong profits, Turkey's banks have been braced for a downturn this year after the central bank raised banks' required reserve ratios in order to slow down rampant loan growth. The central bank has said it wanted to keep loan growth at 25 percent this year after loans expanded 34 percent in 2010.