Bloomberg News

Turkish Lira Depreciates to Record Low on Europe Debt Concern

September 26, 2011

Sept. 26 (Bloomberg) -- The Turkish lira weakened to a record low against the dollar as analysts forecast further declines in the country’s currency amid concern Europe will struggle to resolve the region’s debt crisis.

The lira slid as much as 1.5 percent to an all-time low of 1.8652 per dollar. It traded at 1.8583 as of 6:15 p.m. in Istanbul, extending this quarter’s loss to 13 percent. The yield on two-year bonds rose for a fourth day to the highest in almost two months.

The lira had been the world’s second worst-performing emerging-market currency this year, depreciating 17 percent against the dollar, as a widening current-account deficit and worsening debt crisis in Europe hurt investor confidence in the country’s financial stability. Istanbul-based Global Securities increased its forecast for the lira’s decline this year, predicting it may drop to 1.90 per dollar from 1.85 earlier, according to an e-mailed report.

“There is a lot of uncertainty at the moment,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. “If euro-zone politicians do not come to an agreement over Greek aid, risky assets will suffer more, while the dollar remains the only safe-haven currency.”

The lira may drop to 1.9 per dollar in a month after reaching the “key psychological level” of 1.86, she said.

Yields on the benchmark two-year debt rose three basis points, or 0.03 percentage point, to 8.67 percent, the highest since Aug. 2, a Turk Ekonomi Bankasi AS index of the securities showed.

Europe’s Crisis

European policy makers are facing increased pressure to do more to stop their sovereign debt crisis from further weakening the world’s financial markets and economy. U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.”

“Morale is very bad and the risk taking appetite will continue to be very weak,” Turgut Keles, chief of local market trading at WestLB AG in Istanbul, said in e-mailed comments. “Concrete steps are needed over an orderly default in Greece and recapitalization of European banks. A lasting recovery is very difficult without these steps.”

--Editors: Stephen Kirkland, Ana Monteiro

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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