Bloomberg News

Lira Gains After Erdogan Sees ‘Middle Ground’ for Currency

July 27, 2011

July 27 (Bloomberg) -- The lira strengthened for a second day and bond yields fell after Prime Minister Recep Tayyip Erdogan said the currency will find a “middle ground.”

“A lot of people were complaining a year or two ago after the Turkish lira rose in value, now people are uncomfortable about the decline,” Erdogan told reporters in televised comments from Ankara airport today. “No one should get concerned: we’ll find a middle ground again and we’ll find it very comfortably.”

The lira climbed as much as 0.8 percent following Erdogan’s comments, and traded up 0.1 percent at 1.6958 per dollar as of 5:47 p.m. in Istanbul. The currency pared gains after Frank Gill, an analyst at Standard & Poor’s, said in a telephone interview Turkey’s economy may be heading for a “hard landing,” the country’s fiscal position is “too accomodative” and it’s difficult to predict what decision S&P officials may make regarding Turkey’s future credit rating and outlook.

Yields on benchmark two-year bonds fell 11 basis points, or 0.11 percentage point, to 8.95 percent at the 5 p.m. close, according to a Royal Bank of Scotland Group Plc index. The ISE National 100 Index of stocks lost 0.3 percent to close at 61,181.55 as of 5:30 p.m., falling from a gain of as much as 1 percent following the S&P comments.

The central bank has kept interest rates at a record low of 6.25 percent since January to weaken the lira and reduce the current-account deficit, while increasing reserve requirements for banks to curb loan growth and inflation.

Erdogan’s statement “clearly shows that the government is not happy with the current level of the currency and is planning to take measures to support the lira,” Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul, said in an e- mailed report after Erdogan’s comments.

The lira has lost 8.8 percent versus the dollar so far this year, making it the worst performer among more than 20 emerging- market currencies tracked by Bloomberg.

--Editors: John Kohut, 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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