The Turkish lira headed for a record-low close after the government signaled it isn’t concerned about the currency’s weakness even as inflation accelerates.
The currency fell 0.9 percent to 2.7033 against dollar at 5:14 p.m. in Istanbul. Its depreciation against the dollar is in line with other global currencies over the past year, Finance Minister Mehmet Simsek said in an interview with CNN-Turk TV on Monday. Turkey has nothing to fear from lira weakening, Economy Minister Nihat Zeybekci was quoted as saying by the state-run Anadolu Agency.
Turkey’s lira has weakened 14 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg as prospects for higher U.S. rates heightened concern over the vulnerability of Turkish assets amid government calls for lower domestic borrowing costs. Inflation accelerated for a third month in March to 7.6 percent, more than 2 percentage points above the central bank’s target.
“The lira underperformance this morning is a reflection of Simsek’s comments,” Henrik Gullberg, a currency strategist at Deutsche Bank AG in London, said by e-mail. In Turkey, “it’s been a case of inflation remaining high, the currency selling off and rate hikes have only materialized when foreign-exchange depreciation has been rapid and threatened to result in further inflation deterioration,” he said.
The central bank’s monetary policy committee is set to meet on April 22. The bank will keep all three of the bank’s main rates unchanged, according to the median estimate of 23 analysts in a Bloomberg survey.
The lira slid this year and bond yields climbed as President Recep Tayyip Erdogan and those loyal to him in the government repeatedly called in the central bank to lower interest rates to spur growth.
The yield on two-year government notes climbed 22 basis points to 9.66 percent, the highest since Oct. 10. The 10-year yield fell three basis points to 8.92 percent for the biggest discount to shorter-maturity securities since February 2014.
The currency would have weakened against the dollar even if there was no debate about whether the Turkish central bank has been under pressure from the government, Simsek said today. The lira has fallen versus the greenback in line with other global currencies this year, he said.
The lira has fallen 21 percent in the past 12 months, the seventh biggest drop among 24 developing-nation peers. Brazil’s real slid 27 percent and the ruble slumped 33 percent. The Bloomberg Dollar Spot Index has fallen 2.6 percent since touching a record high on March 13.