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Lira Advances to Five-Week High on Fed Stimulus, Basci Caution

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Dec. 12 (Bloomberg) -- The lira gained to its strongest level in five weeks on bets stimulus from the U.S. will reinforce risk appetite and after central bank Governor Erdem Basci ruled out “extreme measures” to curb currency gains.

The currency appreciated 0.2 percent against the dollar to 1.7798 by 5:08 p.m. in Istanbul, the highest since Nov. 6. Yields on two-year benchmark debt fell one basis point, or 0.01 percentage point, to 5.75 percent.

The U.S. Federal Open Market Committee, which began a two-day meeting yesterday, will announce its interest-rate decision at 12.30 p.m. in Washington, followed by forecasts on economic growth, unemployment and inflation. A “measured” cut in interest rates will be “sufficient” to counter lira appreciation, Basci said yesterday. Economic growth doesn’t get priority in the central bank’s decision-making process as inflation remains above target, he said.

“We are seeing dollar sales in the market before the FOMC announcement,” Emir Baruh, a currency trader at Akbank TAS in Istanbul, said in e-mailed comments. “The market is waiting for quantitative easing from the Fed.”

The Fed will probably expand economic stimulus by announcing $45 billion in monthly Treasury purchases in addition to its program to buy $40 billion in mortgage bonds each month, according to a Bloomberg survey of economists.

Unwanted Gain

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.

The lira has lagged all emerging-market currencies in Europe, Africa and the Middle East except the South African rand in the past month as the Turkish central bank signaled it may cut interest rates further after lowering the top-end of its so-called rates corridor gradually to 9 percent from 11.5 percent in the past three months.

“Markets are not expecting the central bank to ease monetary policy aggressively anymore,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. “This threat of cutting key rates to prevent the lira from strengthening certainly made investors reluctant to enter major lira-longs.”

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

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

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net

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