June 20 (Bloomberg) -- The lira weakened the most among emerging-market currencies and default risk rose to a nine-month high after European officials failed to agree on a loan payout for Greece and Turkey increased efforts curb lending.
Turkey’s currency depreciated for a fifth day in six, weakening 0.5 percent to 1.6038 per dollar at 5:47 p.m. in Istanbul. Yields on benchmark two-year bonds climbed four basis points to 9.08 percent, according to data compiled by Bloomberg. The cost of protecting against default by Turkey rose seven basis points to 180, the highest since August, according to CMA.
“Now there is a risk that Greece’s problem will spread to Spain and Italy and this is irking us,” Bulent Topbas, a portfolio manager at Strateji Menkul Degerler AS in Istanbul, said by telephone.
Euro-area finance ministers put off a decision on whether Greece will get the full 12 billion euros ($17.1 billion) promised for July as they pushed for budget cuts by Prime Minister George Papandreou, whose government faces a confidence motion this week. Turkey’s bank regulator increased provisions for banks that exceed a new limit for consumer lending, according to a decision published in the Official Gazette on June 18.
The regulator’s move signals the central bank will not raise rates in the short term, Tufan Comert, a strategist at Garanti Securities, said in a note to clients.
“Postponement of interest-rate hike expectations is negative for the lira,” Comert said, and estimated that the lira would weaken to 1.62 per dollar and 2.30 per euro, without giving a time frame. “Pressure on the lira will continue in the short term.”
The lira pared declines after European leaders reassured investors a Greek default on its debts can be avoided, easing concern about a spreading regional credit crisis.
Bank loans fell 0.2 percent to 608.8 billion liras ($378 billion) in the week to June 10 and were 35 percent higher than a year earlier, the banking regulator in Ankara said on its website today.
The central bank’s Monetary Policy Committee will convene on June 23 and is likely to hold its benchmark interest rate at a record low of 6.25 percent, the Bloomberg survey of 14 analysts showed. Policy makers have raised banks’ reserve requirements four times since December to contain the credit expansion and rein in a ballooning current-account deficit.
The lira may weaken toward 1.70 and 1.75 versus the dollar amid concern the current-account gap may increase, HSBC Bank Plc said in a report today.
“The market could test the central bank’s tolerance for a weak lira,” HSBC currency strategist Murat Toprak in London said in the report.
The ISE National 100 index of stocks sank 1.2 percent to 61,007.73, falling for the first time in three days.
--Editors: Linda Shen, Stephen Kirkland
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