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Turkish lira eases after cbank tightens liquidity

Istanbul, March 27, 2013

The Turkish lira eased slightly on Wednesday after the central bank cut its overnight lending rate and tightened liquidity in the previous session, the latest moves in one of the world's most complicated monetary policy mixes.

Another flurry of details on Wednesday suggested the bank was moving away from its focus on protecting the economy against a hot money-fuelled boom in the lira and credit, hunkering down instead for the threat of falling capital inflows if the global mood worsens.

Factoring in a rise in worries over the euro zone's problems, the overall effect was to weaken the lira to 1.8214 against the dollar by 1030 GMT from 1.8157 late on Tuesday. Against its euro-dollar basket, it eased to 2.0752 from Tuesday's 2.0741.

The one-point cut in the overnight lending rate took markets by surprise on Tuesday and looked aimed at ensuring the lira did not gain from moves that analysts said added up to a net tightening of monetary conditions.

In a presentation to economists on Wednesday, the bank said tighter liquidity and a recent deceleration in capital inflows would help dampen credit growth but the current account deficit was likely to widen in the short term.

"Our best guess is that (yesterday's) decision can be seen as preparation for a possible deterioration in the global economy and capital flows outlook, perhaps due to broad based risk aversion triggered by Cypriot developments," wrote Inan Demir, chief economist at Finansbank.

Analysts said the central bank wanted to keep a flexible policy mix in case the euro zone's situation deteriorated again and ate into hopes a global recovery was underway.

"In the meantime, (the bank) seems to be careful not to undermine the currency or loan growth. Overall, this decision might be an intermediary step in transitioning to a different policy stance," said Demir.

Two-year bond yields rose to 6.40 percent after falling to 6.32 percent on Tuesday following the central bank announcement.

Istanbul's main share index fell 0.3 percent to 83,723 points, underperforming the global emerging markets index , which rose 0.13 percent.

Shares in insurer Yapi Kredi Sigorta fell 9.5 percent after Europe's biggest insurer Allianz agreed to buy IT from Turkish lender Yapi Kredi Bank.

Yapi Kredi shares fell 0.72 percent to 5.50 lira.

"The news is negative for Yapi Kredi Sigorta as the sale price is below the current price. The transaction valuation is 5 percent below our estimate of 2 billion lira," said Hasan Demir, Deputy Director of Research at Istanbul-based Tera brokers. – Reuters




Tags: Central Bank | Istanbul | liquidity | Euro zone |

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