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Turkish Lira Sinks to New Low as Syria Tensions Climb

The lira sank to a record against the dollar on concern Turkey will be hurt by a military action against its neighbor Syria and confusion over central bank’s policy measures to support the currency.

The lira weakened as much as 1.8 percent to 2.0730, its record since at least 1981 when Bloomberg started tracking the data, and traded down 1.2 percent to 2.0613 at 5:02 p.m. in Istanbul. The currency depreciated more than all other emerging-market peers in the last five days, after India’s rupee and Indonesia’s rupiah, raising its loss against the dollar this year to 14 percent.

The Turkish air force’s mission in a possible operation against Syria will be combat air patrol, Milliyet newspaper reported today, citing unidentified military sources. Turkey’s Incirlik air base near the Syrian border will be used for logistical support if NATO attacks. Some 4,000 Syrians have sought refuge in Turkey in the past five days on fears of a chemical attack, state-run TRT television said.

“Syria is definitely on everybody’s mind and Turkey is obviously the closest major emerging market to the region,” Ilan Solot, a London-based strategist at Brown Brothers Harriman & Co., said by telephone.

A military strike against Syria leaves Turkey “with added perceived risks” as this could boost the current-account deficit through higher energy prices, Tim Ash, chief emerging-markets strategist at Standard Bank in London, said by e-mail.

The dollar’s 14-day relative strength indicator against the lira, calculated on a monthly basis, rose to 73.1, the highest level since October 2002, according to data compiled by Bloomberg. A reading above 70 suggests to some technical analysts a currency may be poised to weaken.

Yields on two-year benchmark notes climbed 12 basis points, or 0.12 percentage point, to 9.94 percent, increasing their advance this month to 71 basis points.

Central bank Governor Erdem Basci ruled out increasing the overnight lending rate above 7.75 percent this year in an interview with the state-run Anatolia news agency yesterday. He vowed to introduce other measures to support the lira and forecast the currency would end the year around 1.92 against the dollar.

“Basci left the market in some kind of a suspense, saying he will start to create some new measures,” Solot said. “The market is waiting for a big announcement.”

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