(Updates with Basci comments starting in third paragraph.)
Jan. 6 (Bloomberg) -- Turkish central bank Governor Erdem Basci said the lira will gain this year and warned investors who want to test that prediction that the bank has a range of instruments with which to “surprise” them.
The bank in Ankara is able to shift borrowing costs at a moment’s notice and deploy reserves in dollar sales when it chooses, Basci told executives in the western city of Bursa today. The lira could strengthen “as you sip your coffee,” he said.
The currency declined 18 percent last year, a depreciation the bank triggered and allowed until it threatened to push up the inflation rate, Basci said. Spending about $15 billion of foreign-exchange reserves to stabilize the lira has been “worth it” and it’s now possible the currency could become overvalued this year, he said.
“Turkey will have no problem in attracting external investment,” Basci said. “2012 will be a year in which the Turkish lira is one of the currencies that strengthens the most. Lira investors in 2012 will gain.”
The currency fell 0.1 percent to 1.8828 per dollar at 1 p.m. in Istanbul today. Its depreciation last year was the biggest among emerging-market currencies tracked by Bloomberg and helped drive inflation to a 20-month high of 10.5 percent in December.
A week of “exceptional tightening” by the central bank, combined with direct sales of dollars has quelled “speculation” against the currency and prevented it from falling as far as 1.94 per dollar, Basci said. “I don’t use the word speculation in a pejorative sense,” he said. “People can have opinions about the lira.”
Those who believe Turkey’s current-account deficit was caused by an overvalued currency are “wrong,” Basci said. The deficit was widened by excessive credit growth in Turkey, which the bank has now slowed, bringing domestic demand for imports to moderate levels, he said.
The cumulative 12-month current-account gap in October widened to $78.6 billion, the central bank said Dec. 12. That’s about 10 percent of gross domestic product, and defies Basci’s prediction in August of a “rapid and sizeable reduction” in the gap in late 2011.
The exceptional tightening may end next week, Basci said, warning that the bank can reintroduce it at any time. The bank has a range of instruments to manage the currency and banks that depend on monthly decisions on a single benchmark rate are struggling in the volatile global environment, he said.
The Turkish central bank is “No. 1” for the diversity of its instruments, he said. “It’s important to have the element of surprise.”
--Editors: Ben Holland, Heather Langan.
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