Bloomberg News

Turkey Lira Strengthens as Bernanke Backs Stimulus; Yields Climb

July 11, 2013

Turkey’s lira gained after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy continues to require stimulus, boosting risk appetite. Bonds declined on speculation Turkey will have to raise interest rates.

The Turkish currency gained 0.4 percent to 1.9401 per dollar at 2:31 p.m. in Istanbul after earlier rising as much as 1.4 percent, the biggest advance since August 2012. Data showing the current account deficit widened more than expected in May helped pare the gain. Yields on benchmark two-year notes rose seven basis points to 9.32 percent, heading for the highest close since June last year. The Borsa Istanbul National 100 (XU100) index climbed 2 percent to 72,470.22, heading for the biggest advance since July 4.

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday in Cambridge, Massachusetts. That provided some relief to Turkish markets, which had been among the worst-hit by speculation the Fed would begin to withdraw stimulus, spurring the Turkish central bank to intervene in the currency market to prevent losses.

“The currency may come under pressure again,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said in e-mailed comments today. “Raising interest rates would be a safer, cleaner and more appropriate tactic” than interventions to prevent lira losses, she said.

The bank’s rate-setting committee next meets on July 23.

Record Low

The lira hit a record low of 1.9740 per dollar on July 8, when the central bank sold $2.25 billion from its reserves, the most in a day since it started sales in 2001. The bank has sold $6.2 billion for liras since June 11, including $1.3 billion yesterday.

As Bernanke’s remarks took pressure off emerging markets, the Turkish central bank today ended its four-day streak of withholding funding at its benchmark interest rate to tighten liquidity, providing banks with 9 billion liras ($4.64 billion) at 4.5 percent.

“It looks like the bank views the currency turmoil as a short-term issue,” Ozkardeskaya said. “But this may trigger concern that its foreign currency reserves may be depleted.”

The central bank had $105.6 billion of gross foreign currency reserves as of June 28.

The Turkish currency depreciated 8.1 percent against the dollar this year, the fifth-worst performance among 20 emerging market currencies tracked by Bloomberg. The lira has retreated 7.1 percent against the euro this year.

Turkey’s current account deficit widened an annual 42 percent to $7.52 billion in May, according to central bank data released today. The gap was expected at $6.8 billion, according to the average of 9 economists’ estimates compiled by Bloomberg.

“Unless global financial developments turn in favor of emerging markets, a policy stance that relies on foreign currency sales against capital outflows is unsustainable,” Deniz Cicek, an economist at Finansbank AS in Istanbul, said in a report e-mailed today.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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