Bloomberg News

Turkish Lira Loses Most in Emerging Markets as Tightening Halted

July 11, 2013

Turkey’s lira fell the most in emerging markets on speculation the central bank’s interventions won’t be enough to stem the currency’s decline and as the bank resumed funding at its benchmark rate. Bond yields jumped.

The currency fell 0.2 percent to 1.9515 per dollar at 6:15 p.m. in Istanbul, the biggest drop among 24 emerging markets tracked by Bloomberg, after earlier rising as much as 1.4 percent. Data showing the current account deficit widened more than expected in May helped reverse the gain earlier today. Yields on benchmark two-year notes climbed 34 basis points to 9.59 percent.

The declines come after U.S. Federal Reserve Chairman Ben S. Bernanke said the U.S. economy continues to require stimulus, sending the dollar index tumbling the most since October 2011 and giving 19 of the 24 emerging market currencies a relative boost. Turkey’s central bank has sold $6.2 billion in foreign currency reserves for liras since June 11, including $1.3 billion yesterday, failing to halt a 3.1 percent decline over that period.

“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.

Record Low

The central bank has kept its benchmark interest rate at a record-low 4.5 percent since May as officials including Economy Minister Zafer Caglayan call for lower rates to boost growth. The bank’s rate-setting committee next meets on July 23.

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.

“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.

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

“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday in Cambridge, Massachusetts. While Bernanke’s remarks took pressure off most emerging market assets, the Turkish central bank today ended its four-day streak of withholding funding at its benchmark rate to tighten liquidity, providing banks with 9 billion liras ($4.64 billion) at 4.5 percent.

Currency Turmoil

“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 Turkish currency has depreciated 8.6 percent against the dollar this year, the fourth-worst performance among 24 emerging market currencies tracked by Bloomberg. The lira has retreated 7.6 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.

While the deficit was wider than expected, an increase in gold imports and one-off profit transfers in the month were responsible for the miss and don’t explain the lira’s decline, Ibrahim Aksoy, an economist at Seker Invest in Istanbul, said in an e-mailed report. The “premature” end to additional tightening measures as the bank offered funding at its benchmark rate for the first time this week “may further erode confidence in the lira,” he said.

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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