Bloomberg News

Lira Rises to Three-week High on Positive Slovak Vote Bets

October 12, 2011

Oct. 12 (Bloomberg) -- The lira appreciated to its highest level in almost three weeks on expectations that Slovakia’s parliament will approve euro region’s bailout fund, supporting emerging market assets.

The lira gained 1.2 percent to 1.8194 per dollar at 5:19 p.m. in Istanbul, raising this week’s increase to 1.6 percent. Yields on two-year benchmark bonds fell 12 basis points, or 0.12 percentage point, to 8.33 percent, according to the RBS Istanbul Benchmark Bond Index.

Slovak opposition leader Robert Fico said an accord between political leaders was reached on approving the European Financial Stability Facility and holding early elections on March 10. Fico, a former prime minister, said the EFSF vote will be held on Oct. 14 at the latest, though a parliamentary agreement on early elections must be passed first.

The central bank sold $70 million to banks today, the lowest amount since Oct 3, a day before the currency hit its historic low at 1.9096 and forced the Ankara-based bank to raise its dollar sales at auctions to a record $750 million. It sold $140 million yesterday, sending the lira 0.5 percent down against the dollar.

“I expect the Slovak parliament to approve the package within this week and the markets are striving to remain optimistic,” Emre Balkeser, head of trading at Garanti Securities, said in e-mailed comments.

The extra yield investors demand to hold Turkish dollar bonds rather than U.S. Treasuries narrowed 12 basis points to 313, compared with a 13 basis-point fall for emerging-market debt, JPMorgan Chase & Co. indexes show.

“It seems that the lira can rally to 1.75-1.80 band if all emerging market currencies do not get into a weakening trend,” said Balkeser.

There is a 53 percent chance that the currency will rise to 1.75 per dollar by the end of 2011 and an 84 percent chance it will advance to 1.8 per dollar, according to implied probability calculated from currency options.

The lira is the worst-performer among 31 major currencies tracked by Bloomberg, losing 15.4 percent this year as the current-account deficit and the European financial woes dented investor confidence in Turkey’s financial stability. The deficit narrowed to $4 billion in August, the smallest gap since October last year.

Turkey’s economy is slowing and the current account deficit, which reached unsustainable proportions, will narrow, Finance Minister Mehmet Simsek said. The gap has peaked at 9.5 percent of gross domestic product and will decline to below that level by the end of the year, Simsek said in a speech in Istanbul today. The deficit is expected to fall further in 2012, he said.

Traders paid 4.9 percentage points more for the right to sell the lira in three months than to buy, according to so- called risk reversal rates compiled by Bloomberg. The premium to insure against further depreciation in the lira fell for the sixth day, in the longest losing streak since March.

--Editors: Aydan Eksin

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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