Turkey’s Lira Weakens Fourth Day on Central Bank Rate-Cut Wagers

The lira fell for a fourth day as Turkey’s Prime Minister Recep Tayyip Erdogan pushed ahead with calls for more interest-rate cuts and inflation accelerated less than forecast in May.

The lira weakened 0.2 percent to 2.1212 per dollar at 5:58 p.m. in Istanbul, taking its four-day loss to 1.7 percent. It slipped 0.8 percent last month, trimming gains to 6.1 percent since an unexpected rate increase in January to stem a slump in the currency. Turkey’s two-year notes fell for a second day.

Erdogan reiterated his criticism yesterday that central bank Governor Erdem Basci is keeping rates too high and called for immediate steps to reduce rates. Consumer price growth has probably peaked, Finance Minister Mehmet Simsek said in Istanbul on May 28. Turkey’s monetary policy committee, which cut the benchmark one-week repo rate by 50 basis points to 9.5 percent on May 22, is scheduled to meet June 24.

“Concern that the central bank may cut rates earlier than anticipated is playing a role in the lira’s decline,” Pinar Uslu, a strategist at ING Bank AS in Istanbul, said in e-mailed comments. “If the inflation outlook recovers as the bank expects, rate cuts may continue.”

Turkey’s statistics office said yesterday annual inflation rate rose to 9.66 percent in May, less than the 9.9 percent median-estimate in a Bloomberg survey of economists.

The prime minister has given Basci three months to tame price increases, Sabah newspaper reported today, without saying where it got the information.

Two-year lira note yields rose one basis point, or 0.01 percentage point, to 8.52 percent at the close in Istanbul, increasing for the second day.

The U.S. Dollar Index, which measures the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, climbed 0.1 percent to 80.596.

U.S. service industries expanded in May at the fastest pace in nine months as orders picked up, indicating improving sales will help the economy strengthen.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net Ash Kumar, Chris Kirkham

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