Bloomberg News

Turkish Lira Weakens a Second Day on Rate Concern; Yields Fall

June 21, 2011

June 21 (Bloomberg) -- The lira weakened for a second day against the dollar and bond yields declined as investors increased bets the central bank will keep interest rates at a record low this week.

Turkey currency depreciated 0.5 percent to 1.6095 per dollar at 6:10 p.m. in Istanbul. The lira was the worst performer among more than 20 emerging-market currencies. The two-year benchmark bond yield fell three basis points, or 0.03 percentage point, to 9.05 percent, according to data compiled by Bloomberg.

Policy makers will probably leave their benchmark rate at 6.25 percent when they meet June 23, according to the median of 14 estimates in a Bloomberg survey. The bank has raised reserve requirements for short-term deposits four times since December and left rates on hold to curb loan growth and contain a current-account deficit that widened to $7.7 billion in April, the second-biggest gap since records began in 1984.

“Foreign investors see the central bank not hiking rates as a mistake and seek to reduce their lira risks before Thursday’s meeting,” Tufan Comert, a strategist at Garanti Securities in Istanbul, said in a note to clients. The lira will “remain under pressure” as the central bank probably won’t raise rates until next year, he said.

Three-month forward-rate agreements, which investors use to hedge against changes in interest rates, fell five basis points to 9 percent, the first decline since June 10. Six-month cross- currency swaps dropped three basis points to 7.1196 percent, the biggest decline since May 24.

The central bank said June 6 that lower fruit prices will help curb inflation after it accelerated to a six-month high of 7.2 percent in May, above the 5.5 percent target rate.

Continuation of the bank’s policy “obviously weighs on the lira especially now that inflation has started to rise,” Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments.

--Editors: Stephen Kirkland, Linda Shen

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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