(Updates after rate decisions, adds India, Nigeria)
By Carolyn Cohn and Philip Baillie
LONDON, July 23 The lira steadied below
one-month highs on Tuesday after a relatively modest interest
rate hike by Turkey's central bank, while the Hungarian forint
hit four-week lows after a rate cut and the promise of more to
Turkey's central bank has been acting in recent weeks to
shore up the currency, whch has fallen on global fears about the
withdrawal of U.S. stimulus and by domestic political tensions.
In contrast, Hungary is easing policy to boost a sluggish
Turkey's central bank raised its overnight lending rate by
75 basis points to 7.25 percent, where many analysts had
expected a 100 bps rise.
"As long as global risk sentiment remains intact, the
current rate hike might be enough to stabilise financial markets
at current rates," BNP Paribas analysts said in a client note,
adding that a winding down of the U.S. Federal Reserve's
stimulus programme towards the end of the year might make a
further Turkish rate hike necessary.
The lira hit one-month highs shortly before the rate
rise, before trimming gains to trade flat on the day.
Turkish stocks, which had been rallying on
expectations of a rate hike to support the lira, took back
earlier gains and were down 0.25 percent on the day.
The forint hit four-week lows against the euro
after Hungary's central bank cut interest rates for the 12th
successive time, to 4 percent, and governor Gyorgy Matolcsy said
in his first post-meeting news conference the rate-cutting cycle
Hungarian stocks fell 0.5 percent towards three-month
lows set last week, though shares in bank OTP edged
up. OTP shares fell sharply in recent days after the bank's
chief executive sold nearly all his shares following the
announcement of government plans to change the terms of private
foreign currency loans, a move likely to lead to bank losses.
Both Hungary and Turkey have rattled the markets in the past
couple of years with unconventional government and central bank
measures. Investors' initial uncertainty has largely given way
to enthusiasm, however, although Turkey saw a dramatic sell-off
in recent weeks following anti-government protests.
The rupee inched up after India's central bank, which
like Turkey is trying to pull its currency off record lows,
announced fresh steps to tighten liquidity.
In Nigeria, the naira hit an eight-day low after the
central bank left rates unchanged at 12 percent but hiked banks'
cash reserve requirement for public sector deposits to 50
percent from 12 percent to support the currency.
Broad emerging stocks rallied 1.5 percent to
six-week highs following strong gains in Chinese shares
, and emerging sovereign debt spreads tightened
by 3 basis points to 318 bps over U.S. Treasuries.
Emerging shares have risen 9 percent in the past four weeks,
helped by more cautious comments from U.S. Federal Reserve
Chairman Ben Bernanke about the withdrawal of monetary stimulus,
but the shares remain 8.5 percent down on the year.