Bloomberg News

Lira Heads for Record Low as Turkey Graft Brawl Intensifies

January 07, 2014

The lira fell, headed for a record against the dollar, as a series of arrests and a fresh purge of the police force signaled an escalation of tensions between Turkey’s government and the judiciary.

The lira slipped 0.4 percent to 2.1803 per dollar at 11:06 a.m. in Istanbul, the weakest since at least 1981 on a closing basis. Yields on benchmark two-year notes dropped three basis points to 10.22 percent after closing at 10.25 percent yesterday, the highest since January 2012. The Borsa Istanbul 100 Index of shares rose 0.2 percent.

Raids across the country netted 27 officials mostly linked to rail and port management on suspicion of corruption, Cumhuriyet newspaper said. About 350 police officers were dismissed in Ankara overnight, taking to 600 the number of firings and re-assignments in the capital since a graft probe into Prime Minister Recep Tayyip Erdogan’s government was made public Dec. 17, according to Hurriyet newspaper.

“The currency slump in the past two weeks is a function of the ongoing political turmoil,” Cristian Maggio, an emerging-markets fixed-income and foreign-exchange strategist at Toronto-Dominion Bank in London, said by e-mail. “Turkey’s rate, equity and FX selloff continues to reflect a combination of external and domestic factors. Neither are likely to ease anytime soon.”

Turkey’s stocks, bonds and currency fell last month after police arrested dozens of suspects as part of a corruption probe, leading to the resignation of three ministers. Erdogan retaliated by dismissing and reassigning hundreds of police officials and labeling the investigation an attempted coup.

Stock Rally

The crisis sparked a 12 percent drop in the Borsa Istanbul National Banks Index in December, leaving the gauge valued at 1.05 times net assets, or book value, on Dec. 27, the lowest since 2009. Turkish stocks rallied the most in the world yesterday as investors bet the decline was overdone.

The police detained 25 officials in the Turkish port city of Izmir overnight on allegations of rigging tenders, Aksam newspaper reported.

Turks added about $20 billion in foreign-currency deposits in the second half of last year, according to central bank data, as savers shunned the local currency for lower-yielding dollar accounts.

To contact the reporter on this story: Isobel Finkel in Istanbul at ifinkel1@bloomberg.net

To contact the editor responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net


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