Turkish Lira Advances Most in Two Weeks on Trade Gap Contraction

The lira gained the most in two weeks after Turkey’s trade deficit shrank by 21 percent. The nation’s benchmark bonds fell.

The currency is poised to rise for a fifth straight month, the longest stretch since July 2007, as the data bolstered speculation that Turkey’s current-account shortfall, which is the broadest measure of trade because it includes foreign investment, will continue to narrow.

“The fall in the current-account deficit will continue in December,” Gizem Oztok Altinsac, an Istanbul-based economist at Garanti Securities, wrote in an e-mailed note today.

The lira appreciated 0.6 percent to 1.7576 per dollar at 7:59 p.m. in Istanbul, the biggest jump since Jan. 17. Yields on two-year benchmark bonds rose two basis points, or 0.02 percentage point, to 5.85 percent, in their second day of advances.

Traders have pushed the currency up by 1.5 percent this month, the steepest monthly gain since June, extending last year’s 6 percent appreciation against the dollar. Moody’s Investors Service left Turkey’s sovereign credit rating one level below investment grade, saying “further progress” is needed in lowering the current-account gap.

Central bank Governor Ercem Basci’s policies to stem credit growth and control inflation helped send the lira’s volatility to the lowest level in more than 25 years, as foreign investors bought more than $24 billion in Turkish stocks and bonds in the past year.

Lira Volatility

The lira is the least volatile currency among eastern European and African peers tracked by Bloomberg on a three-month basis, according to data compiled by Bloomberg.

December’s trade deficit of $7.18 billion compared with the median estimate of $9.45 billion in a Bloomberg survey of 10 economists, extending the gap to $84 billion in 2012. Exports jumped 13 percent and imports fell 1.8 percent, the state statistics agency in Ankara said today.

Oztok said the shortfall in the current account will likely total $5.2 billion in December, bringing the deficit for the year to $50.5 billion.

Yields on two-year bonds dropped 33 basis points in January as the central bank reduced its overnight interest rates by 25 basis points on Jan. 22 on concern the lira may become overvalued. Turkey’s stock and bond markets have attracted inflows on bets of a second upgrade from Moody’s.

“Domestic demand growth will be relatively strong in 2013 and inflation will surprise to the upside,” Bank of America Merrill Lynch analysts including Alberto Ades said in an e-mailed research report released today. “Still, the Central Bank of Turkey may cut overnight deposit rates to cap lira appreciation.”