The lira gained for a fourth day to the highest in almost four weeks as investors see the central bank maintaining its support by offering minimal funding.
The Turkish lira appreciated 0.6 percent to 1.8018 per dollar at 5:25 p.m. in Istanbul, the strongest level on a closing basis since July 3. Yields on two-year benchmark debt fell 0.01 percentage point to 7.77 percent, two basis points above the lowest in ten months.
The average cost of funding by the central bank is 8.1 percent on average in July, compared with 9.15 percent in June, according to data complied by Bloomberg. Trade balance data scheduled for release tomorrow is expected to show the shortfall fell for an eighth month. Inflation slowed to 8.9 percent in June, down from a 3 1/2-year high of 11.1 percent two months earlier.
“Continuously tight monetary policy is still supportive,” Thu Lan Nguyen, a foreign exchange strategist at Commerzbank AG in Frankfurt, said by e-mail. “A lot of people had expected a much more dovish tone from the last central bank meeting, which has not been the case. So the central bank keeping up its hawkishness is positive for the lira.”
Governor Erdem Basci is sending a “clear signal” by offering minimal amounts of funding to banks at the lowest rate in his so-called interest-rate corridor, Nguyen said. The bank today lent 1 billion liras ($550 million) in funding at its lowest 5.75 rate today. Basci alternates rates between 5.75 percent and the top end of his corridor of 11.5 percent.
Expectations of a ratings upgrade are also boosting the lira relative to other currencies, according to Fatih Keresteci, a strategist at HSBC Bank AS in Istanbul.
“I think Turkey’s outlook is positive and the market is pricing in an expected rating upgrade,” Keresteci said by e-mail today. Turkey is rated one level below investment grade at Fitch Ratings and Moody’s Investors Service, and two levels below at Standard & Poor’s.
The lira has gained 5 percent against the dollar this year, trailing only the pesos of Colombia, Chile and Mexico, and Hungary’s forint among major currencies.