The Turkish lira headed for the lowest level in a week on speculation the central bank will take measures to weaken the currency after an index showed it’s overvalued. Bond yields dropped.
The lira fell 0.2 percent to 1.7641 against the dollar at 1:27 p.m. in Istanbul, paring this year’s advance to 1.1 percent. It is the fifth-best performer among 10 emerging market currencies in Europe, the Middle East and Africa tracked by Bloomberg. The Real Effective Exchange Rate Index surpassed 120 yesterday, a threshold central bank Governor Erdem Basci said could result in policy action.
“The central bank would appreciate some depreciation in the Turkish lira,” Erkin Isik, a fixed-income strategist at Turk Ekonomi Bankasi AS in Istanbul, the Turkish unit of France’s BNP Paribas, wrote in an e-mailed note. “We thus turn bearish on lira.”
Royal Bank of Scotland Group Plc’s London-based currency strategist Roderick Ngotho wrote in an e-mailed note today there is a “high probability of currency intervention” as Turkey’s “low-medium” technology exports are “more sensitive to currency fluctuations than the high-tech exporters.” A “measured rate cut to the interest-rate corridor or policy rate is possible if the real effective exchange rate appreciates excessively,” Basci said Jan. 29.
The REER, which monitors the lira against Turkey’s trade partners, rose to 120.16 in January from 118.08 the previous month, according to central bank data. A reading of 120 or above signals excessive currency strength. The median forecast of 24 banks for the lira against the dollar for the second quarter of 2013 moved to 1.80 today from 1.79 two days ago, according to data compiled by Bloomberg.
“The sentiment turned sour after the central bank’s REER release yesterday,” Emir Baruh, a currency trader at Akbank TAS in Istanbul, said in e-mailed comments. “We are seeing foreign and local buying.”
Yields on two-year notes fell three basis points, or 0.03 percentage point, at 5.75 percent, the lowest level on a closing basis since Dec. 17
The governor cut the overnight lending and borrowing rates by 25 basis points to 8.75 percent on Jan. 22 and raised reserve requirements for lenders to curb credit that had started to grow “faster than envisaged, amid accelerating capital inflows,” policy makers said in a statement.
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