Bloomberg News

Turkish Lira Rebounds From Low as Basci Extends Dollar Sales

September 29, 2011

Sept. 29 (Bloomberg) -- Turkey’s currency rose as the central bank extended the biggest week for dollar sales since Aug. 5 to shore up the lira after it fell to a record low.

The lira advanced 0.7 percent to 1.8488 per dollar at 5:06 p.m. in Istanbul, rebounding from an all-time low of 1.8610 at yesterday’s close. The central bank sold $70 million in U.S. currency today, bringing the total this week to $590 million at daily auctions, the most for a week since the interventions started in early August to bolster the lira.

Turkey’s currency is posting the biggest declines in emerging markets this year, dropping 16.5 percent, and is down 12.2 percent this quarter as a widening current-account deficit and worsening European debt crisis hurt investor confidence in the nation’s financial stability. Policy makers cut borrowing costs three times since December, by 1.25 percentage points, to 5.75 percent to help guard the economy from the global slowdown. Central bank Governor Erdem Basci reiterated a commitment yesterday to lower interest rates and reserve requirements to boost the economy.

“Things for the lira look difficult in the coming days if the central bank does not increase the foreign exchange sale volumes significantly,” Emir Baruh, a currency trader at Akbank TAS in Istanbul, said by telephone.

Foreign currency reserves excluding gold totaled $85.6 billion as of Sept. 23, down from a record $93.9 billion on July 8, the central bank website showed, dwarfed by Russia’s international currency and gold reserves at $526 billion.

Limited Reserves

The central bank doesn’t see the need to intervene over a longer period, said Daniel Lenz, chief emerging markets strategist at DZ Bank AG in Frankfurt. “The bank is convinced that it anticipates economic developments correctly and that the market is too pessimistic and will return to the lira as soon as the impact of its policy can be measured,’ Lenz said by e-mail.

The level of 1.90 per dollar “could be a technical turning point when investors return in order to benefit from higher rates and a recovery of the lira,” he said.

Turkey’s economy expanded 8.8 percent in the second quarter as a boom in consumer borrowing forced the government to cap loan growth at 25 percent. The country’s 12-month current- account deficit widened to a record $74.6 billion in July, about 10 percent of gross domestic product.

Yields on the benchmark two-year lira-denominated bond fell five basis points, or 0.05 percentage point, to 8.35 percent at the 5.00 p.m. close in Istanbul, the RBS Istanbul Benchmark Bond Index showed.

‘More Attractive’

“The lira valuation has become much more attractive and in a global downturn, Turkey still has a lot to offer in terms of growth dynamics,” Claire Dissaux, the London-based managing director of global economics and strategy at Millennium Global Investments, which manages about $12 billion, said by e-mail. “We are not yet there but definitely closer to stabilization as the central bank no longer seems to wish to engineer currency depreciation with cuts.”

The extra yield investors demand to hold Turkish dollar bonds rather than U.S. Treasuries narrowed 14 basis points to 353, compared with an eight basis point rise for emerging-market debt, JPMorgan Chase & Co. indexes show. The spread on higher- rated Russia shrank six basis points to 388.

Turkish Swaps

The cost of protecting Turkish debt against default with five-year credit default swaps rose one basis point to 285, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Russian default swaps increased four basis points to 299. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Nordea Bank AB changed its three-month forecast for the lira today, saying it will depreciate to 1.92 per dollar, more than its previous forecast of 1.79, Elisabeth Andreew, chief foreign exchange strategist at the Copenhagen-based bank, said in e-mailed comments.

Andreew said investors are unwinding long positions in the lira, and the nation’s current account deficit is “still high and the tourist season is coming to an end.”

--Editors: Laura Zelenko.

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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