Turkish Lira Drops to Record as Central Bank Keeps Rates on Hold

The lira fell to a record after the central bank left interest rates unchanged, failing to tackle an inflation rate it said will remain above target.

Turkey’s currency dropped as much as 1.3 percent to an all-time low 2.2691 per dollar before trading 0.6 percent weaker at 2:48 p.m. in Istanbul. The lira has fallen for seven consecutive days, extending its depreciation this year to 4.6 percent, the biggest decline among 24 emerging-market currencies tracked by Bloomberg.

Central Bank of Turkey Governor Erdem Basci left the overnight lending rate at 7.75 percent, as predicted by 10 of 14 analysts in a Bloomberg survey. Morgan Stanley and Goldman Sachs Group Inc. were among banks expecting an increase of at least 50 basis points. The one-week repurchase rate kept at 4.5 percent, and the overnight borrowing rate at 3.5 percent as unanimously predicted in separate surveys. Inflation will stay “markedly” above 5 percent for some time, the central bank said today.

“The bank recognizes that there is a threat from inflation now, but is unwilling to do that much about it,” Tim Ash, an economist at Standard Bank Plc, said in e-mailed comments. “The lira will continue to feel the strain.”

Yields on Turkey’s two-year government notes increased three basis points, or 0.03 percentage point, to 10.19 percent.

Basci said Dec. 24 that he’ll keep interest rates unchanged unless he sees a deterioration in inflation. A combination of liquidity tools and measures to limit growth in consumer loans will be employed before the bank makes any decision on rates, he said.

Interbank interest rates will be increased to about 9 percent from 7.75 percent on days of extra-tightening, when it does not hold one-week repurchase agreement auctions, the central bank said today. A tighter liquidity policy is needed to make the inflation outlook consistent with medium-term goals, it said.

Price growth accelerated to 7.4 percent in December from 7.32 percent a month earlier, the state statistics office said Jan. 3. Analysts in a Bloomberg survey predicted it would slow to 7.26 percent.

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

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