Lira Rises to Month High After Basci Rules Out Extreme Measures

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The lira gained to its strongest in more than a month after central bank Governor Erdem Basci said price stability is a “priority” and “extreme measures” are not required to curb currency gains.

The currency appreciated 0.4 percent against the dollar to 1.7824 by 6:15 p.m. in Istanbul, the strongest level since Nov. 6. Yields on two-year benchmark debt rose 1 basis point, or 0.01 percentage point, to 5.76 percent, rising for the first time in four days.

A “measured” cut in interest rates will be “sufficient” to counter lira appreciation, Basci said in a televised conference in southern Turkish city of Antalya today. Economic growth does not get priority in the central bank’s decision-making process as inflation remains above target, Basci said. The bank has cut the average cost of funding for Turkish lenders to 5.6 percent as of Dec. 10, from 11.93 percent on Jan. 6.

“A rate cut would be symbolic to address worries of politicians and send the message to markets that the central bank is putting a line in the sand on any lira appreciation,” Simon Quijano Evans, ING Groep NV’s London-based head of emerging-market research for Europe, the Middle East and Africa, said in an e-mailed comments today.

Basci said on Nov. 12 he won’t tolerate any unwarranted currency gain jeopardizing the country’s external balances. Fitch Ratings raised Turkey’s credit rating to investment grade on Nov. 5.

Rate Cut

The lira has lagged all emerging-market currencies in Europe, Africa and the Middle East over a month as the Turkish central bank signaled it may cut interest rates further after lowering the top-end of its so-called interest-rate corridor by 50 basis points to 9 percent on Nov. 20.

The bank kept the overnight borrowing rate steady at 5 percent and the benchmark interest rates unchanged at 5.75 percent last month. The rate-setting panel will meet on Dec. 18.

Turkey’s current-account deficit narrowed to $2 billion from $4.5 billion a year earlier, the central bank in Ankara said on its website today. It was forecast at $2 billion according to the median estimate of 11 economists surveyed by Bloomberg.

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