Turkish central bank Governor Erdem Basci said he’s ready to cut interest rates as early as this month to prevent a surge in the lira after the country’s debt was raised to investment grade.
The central bank is monitoring its index of the lira’s real exchange rate, measured against the currencies of its main trade partners, Basci told the state-run Anatolia news agency in a televised interview. The index rose to 117.4 last month from 116.3 in September and Basci said it currently stands at 119.
A level of 120 would signal an over-valued currency, and “we may respond in the short term,” Basci said. If the measure passes 125 then “a stronger policy response” would be needed, he said. “At the moment, measured steps are sufficient.”
Basci last year adopted an interest-rate corridor that allows him to adjust rates daily. He has responded to slowing economic growth this year by bringing the band’s top end down to 9.5 percent, and keeping bank borrowing costs near the lower limit of 5.75 percent in recent months.
Turkey won its first investment-grade rating in almost two decades from Fitch Ratings last week, prompting predictions of an increased flow of international investment to the country.
The lira weakened 0.3 percent to 1.796 per dollar at 12:50 p.m. in Istanbul. Yields on benchmark two-year lira bonds extended their record low, falling 21 basis points to 6.36 percent.
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