Lira plunges on report Syria shot down Turkish warplane
ISTANBUL |(Reuters) - The Turkish lira fell sharply on Friday after a news report said a Turkish warplane had been shot down by Syrian air defenses, and analysts said it would be vulnerable to further losses as more details of the incident emerged.
Lebanon's Hezbollah-owned Al-Manar television station said that Syrian air defenses had shot down a Turkish military aircraft, quoting Syrian security sources.
"The lira eased after reports saying the Turkish jet was shot down by Syrian air forces. If this is confirmed, we can see more of a sell-off in the lira," said Suha Yaygin, an emerging markets trader at TD Securities.
The lira fell to 1.8151 to the dollar after the news report, from around 1.8075 beforehand.
Turkey's stock and bond markets had closed before news of the jet incident came out.
The lira's losses extended its slide earlier in the day on speculation the central bank might soon be ready to cut interest rates to shore up Turkey's slowing economy in the face of weakening global economic conditions.
At its monthly policy meeting on Thursday, Turkey's central bank kept interest rates steady, opting to continue using liquidity management tools to curb inflation and support the lira. However, it signaled a slightly less aggressive stance against inflation than previously, spurring market speculation it could soon cut interest rates.
"Earlier, the lira was weakened on expectations that the central bank will loosen its policy stance in the coming period. It's hard to predict when the bank would first cut its rate but I think it can announce it in the next first or second policy meeting depending on (economic) developments," Yaygin said.
Turkey's annual inflation rate decelerated more sharply than forecast to 8.3 percent in May from 11.1 percent in April, but was still far above the central bank's year-end target of 5 percent.
The central bank has been using a complex monetary policy mix to support the weak lira and dampen inflation pressures, based on variable daily injections of lira funding, a flexible corridor between lending and borrowing rates, and high bank reserve requirements.
The yield on the two-year benchmark bond closed at 8.80 percent, after falling to 8.78, its lowest since October 2011, on expectations that the central bank will ease its monetary stance.
Previously, the benchmark bond yield closed at 8.94 percent.
"Since two days we see foreign investors buying Turkish bonds. I think expectations that the central bank would reduce its tight stance in the period ahead and inflation would decline, support the bond market," said Erdinc Mogol, manager at treasury marketing unit in Akbank.
The central bank on Thursday raised the upper limit on lira required reserves that may be held in forex and gold, in a move seen by analysts as lowering banks' funding costs, allowing them to buy more bonds.
That triggered a rally in Turkish banking shares on Thursday, sending them up nearly 3 percent. They stabilized on Friday and the banking index ended down 0.1 percent.
Istanbul's main stock index closed 0.02 percent up at 60,451 points, outperforming a 1.65 percent decline in the MSCI emerging markets index.
The Istanbul Stock Exchange said on Friday that the closing time for the country's main stock index will be pushed back by 10 minutes to 1440 GMT from the current 1430 GMT from July 16.
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You can tell how serious the world takes this shoot down that the Turkish Lira is already plunging in response.