Lira Gains Versus Dollar as Fitch Holds Turkey Rating

  • Short-term risks including Fed-rates concern seen abating
  • Babacan, Simsek candidacies also boosting the currency

The lira rose before the central bank’s monetary-policy meeting Tuesday as Fitch Ratings’ decision to maintain Turkey’s outlook added to optimism over the U.S. delaying a rates liftoff.

The currency rose 0.1 percent to 3.0034 against the dollar as of 7:59 p.m. in Istanbul, the second-best performance among 24 peers tracked by Bloomberg after the Russian ruble, having earlier climbed to the highest since Sept. 3. The lira appreciated last week as former deputy prime minister Ali Babacan’s candidacy for elections in November along with Interim Finance Minister Mehmet Ali Simsek added to a rally sparked by the Federal Reserve’s decision to keep borrowing costs on hold.

Fitch Ratings kept Turkey’s ratings at BBB- with a stable outlook, saying the country’s government balance sheet remains “strong” amid a deteriorating political environment. The company earlier this month said Turkey was among the emerging markets “most exposed” to higher Fed rates. Turkish assets had taken a beating amid concern over the outcome of the November election, the war against autonomy-seeking Kurdish militants in the southeast and Islamic State warriors in neighboring Syria.

“Short-term risks that have been pressuring the market have been removed with Babacan and Simsek’s candidacy; Fitch keeping the rating and outlook unchanged; the Fed delaying its rate increase and less reports of deathly violence in South East,” Figen Ozavci, Deputy CEO of Meksa Yatirim in Istanbul, said by phone. “Should the central bank take a step to protect the lira, we may see continuation of this trend until the elections.”

Rates Meeting

Turkish policy makers have left interest rates unchanged at 7.5 percent since February as the lira tumbled, after reducing benchmark borrowing costs from as high as 10 percent in the previous 10 months. The central bank will keep rates unchanged at a meeting on Tuesday, according to the median estimate of 18 economists surveyed by Bloomberg.

Turkey’s governing AK Party last week listed Babacan and Simsek as candidates for the elections on Nov. 1. Babacan is seen as central to Turkey’s economic team over the past decade, while Simsek has won plaudits for maintaining fiscal restraint and reducing debt.

Turkey has had investment-grade ratings from Moody’s Investors Service and Fitch Ratings for more than two years, after the government led by then-Prime Minister Recep Tayyip Erdogan improved public finances.

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