Bloomberg News

Lira Gains Most This Month on Policy Tightening, Narrow Deficit

April 11, 2012

The lira appreciated the most this month after the central bank tightened monetary policy by withdrawing funding at its benchmark lending rate and the current-account gap narrowed more than expected.

The Turkish currency strengthened 0.5 percent to 1.8052 per dollar at 4:02 p.m. in Istanbul, the most since March 28, paring this week’s losses to 0.6 percent. The yield on two-year benchmark debt declined four basis points, or 0.04 percentage point, to 9.44 percent.

The central bank withdrew lending in its one-week repo auction at 5.75 percent, the lower end of its rates corridor, for the first time since March 29 after the lira sank to its lowest level in three weeks yesterday on concern the debt crisis in Europe is worsening and the influx of refugees escaping violence in Syria increased.

“The central bank reacted to the weakness in the lira,” Daniel Lenz, chief emerging-market strategist at DZ Bank AG, in Frankfurt, said in e-mailed comments. “The bank usually installs restrictive measures once dollar-lira moves sharply upward.”

Turkey’s current-account deficit narrowed more than expected from a year earlier, signaling the central bank is meeting its forecast of a “gradual” improvement in the gap.

The deficit stood at $4.2 billion in March, compared with $6 billion in the previous month, retreating for the fourth straight month, the Ankara-based bank said on its website today. The decline was greater than the $4.7-billion median estimate in a Bloomberg survey of nine economists.

Stronger Lira

“The central bank embarked on exchange-rate targeting in the short term as part of its monetary policy,” Serhan Gok, head of research at UBS Securities in Istanbul, said in e-mailed comments. “I suppose it tries to keep the lira below 2.10 against the basket.”

The lira traded at 2.08 against an equally-weighted euro and dollar basket today. Central Bank governor Erdem Basci halted lending at 5.75 percent in the week between March 22 and March 29.

“I expect the bank will continue to refrain from lending at 5.75 percent until the Monetary Policy Committee meeting on April 18 if the lira does not gain above 2.05 against the basket suddenly,” Murat Yardimci, head of trading at ING Bank AS, said in e-mailed comments.

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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