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Turkish lira hovers near record low after c.bank holds rates

10/23/2020 | 04:26am EST

* Russian c.bank expected to hold rates

* Polish zloty extends losses into a third session

* MSCI EM stocks index to gain for a fourth straight week

Oct 23 (Reuters) - Turkey's lira hovered around record lows on Friday after the central bank unexpectedly kept interest rates on hold, while Russia's rouble was little changed ahead of a rate decision there.

Most other emerging markets currencies in EMEA marked small moves. The polish zloty extended losses into a third day after the government outlined restrictions to curb the spread of the coronavirus.

The lira had plunged 1.6% to a record low on Thursday after the central bank said it would continue with liquidity measures to tighten money supply, as opposed to tweaking lending rates.

The move raised more questions over the Turkish central bank's commitment to controlling inflation, and put the lira - which has already come under pressure from weak economic fundamentals and political tensions - on course for an eighth straight weekly loss.

Russia's rouble fell about 0.2% to the dollar after touching a one-month high. The country's central bank is largely expected to keep interest rates on hold later in the day, as it accounts for possible volatility ahead of the U.S. presidential election, according to a Reuters poll.

The bank steadily cut rates early in the year to lighten the economic impact of the coronavirus. But recent volatility in foreign exchange markets, partly caused by the turmoil in neighbouring Ukraine and more recently in Azerbaijan and Armenia, saw the bank holding off on monetary easing.

"We still forecast volatility to calm down and rate cuts to resume before the year-end, especially as the economy will likely weaken afresh as the corona second wave spreads," Tatha Ghose, FX & EM analyst at Commerzbank wrote in a note.

"There is a small likelihood of a 25bp rate cut even today – in fact, this had been our base case until recently – but, the odds have now shifted strongly in favour of a no change decision because USD-RUB is still too high for rate cuts."

Emerging market equities in EMEA rose slightly, while the MSCI's index of emerging market stocks was set to gain for a fourth straight week.

For GRAPHIC on emerging market FX performance in 2020, see http://tmsnrt.rs/2egbfVh For GRAPHIC on MSCI emerging index performance in 2020, see https://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 Ambar Warrick in Bengaluru)

© Reuters 2020
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