July 29, 2020 / 8:51 AM / 16 days ago

EMERGING MARKETS-Stocks pause ahead of Fed, analysts see more pain for Turkish lira

* Turkey’s lira falls for fourth straight day

* Analyst sees limits to CBRT’s ability to contain lira weakness

* U.S. Fed to release policy statement at 1800 GMT

* S.African inflation inches up in June

By Shreyashi Sanyal

July 29 (Reuters) - Emerging market stocks eked out gains on Wednesday as investors awaited the U.S. Federal Reserve’s policy address later in the day, while Turkey’s lira fell for a fourth straight session as analysts warned of more trouble for the currency.

Few big bets were made ahead of the Fed’s release of its policy statement at 1800 GMT (2 pm EDT). Markets are expecting a dovish stance from the U.S. central bank and reassurance of its commitment to endless stimulus.

The MSCI’s index for developing market stocks edged 0.2% higher, rising for the second day, with markets in China leading gains in early hours of trading.

Turkey’s lira weakened against the dollar, after sinking to its lowest level since mid-May on Tuesday, ending what analysts called two months of calm engineered by costly state interventions.

The Central Bank of the Republic of Turkey (CBRT) and state banks have sold billions of dollars to keep the lira stable, according to data and sources, and traders calculate these interventions amounted to some $100 billion since they began early last year.

The various forms of intervention appear to have been costly from a use of reserves perspective, said Phil Torres, senior portfolio manager at Aegon Asset Management.

“Selling of the lira is due... we see limits to the CBRT’s ability to contain this effect and expect more weakness over the medium term,” Torres said.

This has now sparked worries about Turkey’s depleted reserves, high external payment obligations, rising current account deficit, stubborn inflation and deeply negative real rates. Istanbul shares fell 1.3% on Wednesday.

Turkish Central Bank Governor Murat Uysal said mid-term expectations for inflation showed an improvement compared to the bank’s previous quarterly inflation report and disinflation would become more prevalent in the second half. The CBRT also raised its end-2020 inflation forecast.

As the dollar fell to two-year lows, other emerging market currencies gained, with the Russian rouble rising 0.7% and South Africa’s rand strengthening 0.6%.

In South Africa, data showed headline consumer inflation quickened to 2.2% year-on-year in June from a 15-year low of 2.1% in May. Another piece of data showed growth in private-sector credit in South Africa slowed in June to 5.64% year-on-year from a revised 6.26% in May.

Currencies in central and eastern Europe, including Hungary , Poland and Romania, were mostly flat against the euro.

For GRAPHIC on emerging market FX performance in 2020, see tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see (Reporting by Shreyashi Sanyal in Bengaluru; Editing by Subhranshu Sahu)

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