Lira Advances as Central Bank Seen Switching Focus to Currency
The lira strengthened to the highest level in almost three weeks after the central bank withheld funding at its benchmark rate for a fifth day.
The Turkish currency appreciated 0.2 percent to 1.7839 per dollar at 5:55 p.m. in Istanbul, its highest level since March 8. The lira has gained 1.4 percent since March 22, when the central bank first declined to offer daily funding at its benchmark one-week repo rate of 5.75 percent, the lower end of its so-called rates corridor.
“The central bank is now focusing squarely” on the value of the lira, Tim Ash, chief emerging-markets economist at Royal Bank of Scotland Group Plc, said in an e-mailed note to clients today. “Whatever the central bank might say about its commitment to fighting inflation, we know that it’s reaction function is far more responsive now to the movement in the lira.”
The bank kept its interest-rate corridor, which ranges from a low of 5.75 percent to a high of 11.5 percent, unchanged at its monthly meeting yesterday after a 1 percentage point reduction in the top rate on Feb. 21 caused the lira to weaken. From this day of rate trimming to the point when the bank restarted liquidity tightening on March 22, the lira depreciated 3.1 percent.
The currency has gained 6 percent against the dollar this year, following a decline of 18 percent last year. Turkey’s current-account gap is the highest in the world at 10.3 percent of the gross domestic product among 60 major economies tracked by the International Monetary Fund. The inflation rate fell to 10.4 percent in February from 10.6 percent in the previous month, while remaining at more than twice the bank’s 5 percent target for the year.
Yields on benchmark two-year Turkish bonds fell 1 basis point, or 0.01 percentage point, to 9.47 percent.
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