Lira Reaches 2-Week High on U.S. Budget Deal, Turkey Tobacco Tax

The lira jumped to a two-week high as passage of a U.S. budget bill boosted risk appetite and a report indicated Turkey will raise cigarette tax less than some analysts anticipated, easing inflation concerns.

Turkey’s currency gained 0.4 percent against the dollar to 1.7787 at 5:02 p.m. in Istanbul, the highest level since Dec. 14. Yields on benchmark two-year notes fell two basis points, or 0.02 percentage point, to 6.16 percent.

The U.S. House of Representatives voted in favor of the Senate’s budget legislation as Republican lawmakers abandoned efforts to add spending cuts to the bill, removing one impediment to economic growth. Turkey raised a proportional special consumption tax on cigarettes to 65.25 percent from 65 percent, Dunya reported today, citing a cabinet decision published by Official Gazette.

“The new year starts with a strong risk-on green light,” Benoit Anne, head of emerging-market strategy at Societe Generale SA in London, wrote in an e-mailed note today. “In the U.S., the worst-case scenario has been averted with a last-minute deal on a fiscal package, thereby providing massive relief to global risk appetite.”

Taxes on cigarettes were expected to increase to as high as 69 percent starting from Jan. 1, daily newspaper Yeni Safak reported on Dec. 20.

“The cigarette hikes were less than what some market players had expected and this will affect inflation positively,” Selim Gulkan, a fixed-income trader at Turk Ekonomi Bankasi AS in Istanbul, said in e-mailed comments.

Consumer prices in Istanbul, Turkey’s largest city, rose 0.36 percent in December, the Istanbul Chamber of Commerce said in an e-mailed statement yesterday. Nationwide inflation data is scheduled for release tomorrow. Inflation probably slowed to 6 percent in December from 6.37 percent in November, according to the median estimate of six economists surveyed by Bloomberg.

The lira appreciated 6 percent last year, the third-largest gain in emerging Europe after the Polish zloty and the Hungarian forint. Yields on two-year lira benchmark bonds fell 483 basis points in 2012, the biggest annual fall since 2009.

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