Basci Says Turkey Won’t Raise Interest Rates to Defend Lira

Turkey’s central bank Governor Erdem Basci said he won’t increase interest rates to fight a deepening slump in the lira, and instead promised to use “surprise” tools to reverse the trend.

The bank has $40 billion in reserves it can use to defend the lira, which fell to a record low against the dollar today, Basci said in a televised interview with state-run AAFinans. He said the bank won’t change its overnight lending rates, the top end of its interest-rate corridor, and will later announce “new tools” to support the currency.

Basci increased the lending rate this month and last, and has spent $8.7 billion buying liras since June 11. The Turkish currency has fallen 12 percent against the dollar this year, the second-most among currencies in Europe, Africa and the Middle East after South Africa’s rand, according to data compiled by Bloomberg. The slide in emerging-market currencies began in May when the U.S. Federal Reserve signaled it may scale back its monetary stimulus.

Basci’s comments ruling out higher interest rates was “negative for the lira in our view, given the U.S. Fed uncertainty,” Ibrahim Aksoy, an economist at Sekerbank AS in Istanbul, said by e-mail as the central bank chief spoke.

The lira weakened 1.1 percent to 2.018 per dollar at midday in Istanbul, after falling as much as 1.9 percent on Basci’s comments. Yields on two-year benchmark lira bonds fell 14 basis points, or 0.14 percentage point, to 10.02 percent.

To contact the reporters on this story: Onur Ant in Ankara at oant@bloomberg.net; Ali Berat Meric in Ankara at americ@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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