Turkey’s Lira Drops Most in Two Weeks as Drought Spurs Inflation

The lira headed for its steepest drop in almost two weeks as Deputy Prime Minister Ali Babacan said Turkey faces the worst drought in 14 years, deepening concern policy makers will struggle to contain inflation.

The currency depreciated 0.7 percent to 2.1758 per dollar at 5:14 p.m. in Istanbul, the most on a closing basis since Aug. 20 and the biggest drop among 24 emerging markets after the Colombian peso. Two-year government notes fell for the first time in three days, sending the yield 15 basis points higher to 9.19 percent.

The drought is driving up food prices, so the central bank’s failure to meet its year-end 5 percent inflation target isn’t about monetary policy, Babacan said in an interview broadcast on NTV. Consumer-price growth probably accelerated for a second month to 9.4 percent in August, economists in a Bloomberg survey said before a report tomorrow.

“Tomorrow’s data release and inflation statements coming from political figures have triggered lira selling,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said in e-mailed comments. “The lira comes at the top of falling emerging-market currencies with domino effect because it carries inflation and monetary-policy risk.”

Food prices have increased at a faster pace than consumer prices in general as dry weather hurts crops in supplies, the central bank said in a statement after its last meeting on Aug. 28. Policy makers kept their benchmark one-week repurchase rate unchanged last week, after lowering it by 1.75 percentage points since May.

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