Lira Advances as Basci Resists Erdogan Pressure to Raise Rates

April 24 (Bloomberg) -- The lira appreciated the most in more than two weeks and government bonds climbed after Turkey’s central bank resisted government pressure to cut interest rates.

The currency gained 0.7 percent to 2.1363 per dollar at 5:53 p.m. in Istanbul, the biggest advance since April 8 on a closing basis. It has strengthened 9.4 percent in the past three months, the most among 24 emerging-market currencies tracked by Bloomberg. Yields on Turkey’s two-year notes dropped 11 basis points to 9.73 percent today.

The central bank’s monetary policy committee kept the benchmark repurchase rate at 10 percent, in line with all 16 estimates in a Bloomberg survey of economists. The bank will maintain its “tight monetary policy stance” until the inflation outlook improves significantly, according to a statement after today’s decision, the first since Prime Minister Recep Tayyip Erdogan urged central bank Governor Erdem Basci on April 4 to cut borrowing costs to spur the economy.

“We consider the move to be very assuring, supporting currency stability and likely to help narrow the credibility gap in the coming months,” Tevfik Aksoy, chief economist for Europe, the Middle East and Africa at Morgan Stanley in London, said in e-mailed comments.

Inflation in the country accelerated to 8.4 percent in March, the highest level since July. Policy makers also kept their overnight borrowing and lending rates on hold.

The central bank more than doubled its benchmark policy rate to 10 percent in January after the lira slumped to a record of 2.39 against dollar. Basci said on April 7 that policy makers may take “measured steps” to ease access to credit.

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

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net Daliah Merzaban, Andrew J. Barden