Turkish Lira Weakens to Two-Week Low on European Election Result

The lira headed for the weakest close in almost two weeks after French and Greek election results raised concern the European debt crisis may worsen, reducing risk appetite for emerging-market currencies.

The lira depreciated 0.3 percent to 1.7634 per dollar at 5:07 p.m. in Istanbul, the lowest level since April 25 on a closing basis. The yield on two-year benchmark debt rose two basis points, or 0.02 of a percentage point, to 9.46 percent, the highest in three weeks.

The euro retreated to a three-month low against the dollar after French Socialist Francois Hollande was elected president and Greek voters backed anti-bailout parties. Hollande pledged to push for less austerity. He called for policies German Chancellor Angela Merkel opposes, including increased spending and delayed deficit-reduction. The European Union buys about half of Turkish exports.

“We are generally seeing markets in a risk-off mode which is due to the election outcomes in France and Greece,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. “The crisis is likely to linger and decision making with the European Monetary Union is going to be harder too,” she added.

The Turkish central bank refrained from lending at the lowest policy rate of 5.75 percent for a second day in its repo auctions. A government report showed last week inflation accelerated to 11.1 percent in April from 10.4 percent in the previous month, the highest yearly advance in 3 1/2 years, as food and energy costs rose. The bank instead provided 3.3 billion liras in overnight repurchase agreements at 11 percent and 3 billion liras in one-week repo auction at 10.76 percent average rate.

“The lira is holding up quite well in this environment though, which is due to the central bank’s monetary policy,” Nguyen said.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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