Bloomberg News

Lira Heads for Biggest Drop in 2012 on Bets Inflation Rate Rose

March 02, 2012

The lira headed for the biggest drop this year and bond yields advanced on speculation the inflation rate rose in February.

The Turkish currency weakened 0.9 percent to 1.7694 per dollar at 6:46 p.m. in Istanbul, heading for the biggest depreciation since Dec. 28. Yields (BENCH) on two-year benchmark debt rose one basis point, or 0.01 percentage point, to 9.24 percent, according to a Turk Ekonomi Bankasi AS (TEBNK) index.

Inflation more than doubled last year to the highest among the Group of 20 economies as a weaker currency increased Turkey’s import cost. The rate probably held at a three-year high of 10.6 percent in February, according to the median estimate of three economists polled by Bloomberg before the statistics office releases its report March 5.

“I expect CPI coming in above market consensus,” Daniel Lenz, chief emerging market strategist at DZ Bank AG in Frankfurt, said in e-mailed comments. “This again will move markets and probably will not turn things for the better.”

The central bank cut its overnight lending rate and benchmark one-week repo rate last month, saying a 7.9 percent rebound in the lira this year and slowing domestic economic growth damped price pressures.

“The positive sentiment on the lira and Turkish bonds has faded since the central bank cut the overnight rate. Investors are worried the bank could repeat old mistakes,” Lenz said.

The Turkish central bank cut interest rates to a record low of 5.75 percent in August, sending the lira 18 percent weaker in the biggest decline worldwide last year. Yields soared 390 basis points in the biggest jump since 2008.

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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