Turkey’s currency and stocks erased losses, with the lira set for a 10-day high versus the dollar, as Finance Minister Mehmet Simsek ruled out capital controls and Russia’s central bank intervened to support the ruble.
The currency appreciated 0.7 percent to 2.2450 against the greenback at 6 p.m. in Istanbul, paring its loss this month to 4.3 percent. The central bank has in the past week held an unscheduled market intervention and raised rates in an attempt to shore up the exchange rate. The yield on two-year benchmark notes climbed seven basis points to 10.95 percent today, while the Borsa Istanbul 100 Index rose 1 percent following a 1.9 percent decrease earlier.
Simsek ruled out restrictions on capital movements as Prime Minister Recep Tayyip Erdogan spurred bets that the government may resort to alternative measures to support the lira. The ruble rebounded from a record after Bank Rossii affirmed unlimited market intervention to keep the currency within its target corridor amid a selloff in emerging markets.
“The Russian central bank’s intervention and Simsek’s statements have been the catalyst” for the lira’s recovery, Tunc Obuter, head of trading at Garanti Investment in Istanbul, said in an e-mail.
The lira is the fifth-worst performer this month among 24 emerging-market peers tracked by Bloomberg after currencies in Argentina, Russia, South Africa and Hungary.
Erdogan said yesterday he’ll give the policy shift time to succeed and “won’t maintain faith” in the rate increase unless it leads to a revival of the Turkish currency. The central bank raised its benchmark rate, also known as the one-week repurchase rate, to 10 percent, from 4.5 percent yesterday in a midnight decision following an emergency meeting.
“The question is if the central bank can keep rates at these high levels despite growth risks,” Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, wrote in an e-mail. “If the market has its doubts, the lira will remain under pressure.”
JPMorgan Chase & Co. cut its 2014 economic growth forecast for Turkey to 1.9 percent from 2.5 percent, Yarkin Cebeci, an Istanbul-based economist at the bank, said in a note yesterday. Credit Agricole CIB will probably lower its estimate to below 2 percent, Guillaume Tresca, a senior emerging-markets strategist at the bank in Paris, said in an e-mail.
Erdogan has historically opposed higher borrowing costs, which threaten to slow the economy. Turkey will hold municipal elections on March 30 and a presidential election in August.
Central bank Governor Erdem Basci also raised the overnight lending and borrowing rates to 12 percent from 7.75 percent and to 8 percent from 3.5 percent, respectively, at the policy meeting yesterday.
BlackRock, the world’s biggest money manager, said it favors investments in Turkish financial companies as the country’s 16-member bank index fell below book value for the first time in five years. The Borsa Istanbul index of banking stocks gained 1.7 percent.
“In the past couple of years, every dip has been a buying opportunity and a lot of investors have probably started to think that this may the next one,” Ilan Solot, a strategist at Brown Brothers Harriman & Co. in London, said in an e-mail.
Basci is fighting to halt a currency rout that gained traction amid domestic upheaval and a rout in emerging markets. Erdogan is embroiled in a graft scandal that has ensnared several ministers and the chief executive officer of a state-owned bank.
The U.S. Federal Reserve reduced the pace of bond buying in a second straight meeting yesterday. The lira has weakened 18 percent since May 22, when the Fed signaled it may start cutting stimulus.