Turkish Lira Weakens to 2013-Low as Fed Signals Slowing Stimulus

Turkey’s lira weakened to its lowest level this year after the U.S. Federal Reserve signaled it may consider slowing the pace of asset purchases, cutting appetite for riskier emerging-market assets.

The currency headed for its steepest weekly depreciation in nine months, retreating in line with most emerging-market peers tracked by Bloomberg today. Several participants at the Federal Open Market Committee’s Jan. 29-30 meeting said the central bank should be ready to vary the speed of its $85 billion in monthly bond purchases, according to the minutes released yesterday.

“The move can be observed across the emerging-market universe,” Thu Lan Nguyen, a currency strategist at Commerzbank AG, said in e-mailed comments. “I would attribute this to the FOMC minutes which signaled that the Fed might end quantitative easing sooner than many had expected.”

The lira depreciated 0.6 percent against the dollar to 1.7935 by 5:04 p.m. in Istanbul, declining for a fourth day, as Turkey’s central bank cut interest rates this week for the second time in 2013.

Yields on benchmark two-year lira notes rose 3 basis points, or 0.03 percentage point, to 5.67 percent, recovering from its lowest level since at least April 2005 reached yesterday.

Several Fed policy makers “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved,” according to the minutes.

The central bank trimmed its overnight borrowing and lending rates by 25 basis points to 4.5 percent and 8.5 percent, respectively, on Feb. 19, after reducing them by the same amount in January.

“We do not see much potential for the Turkish currency to appreciate on a three-month horizon,” said Felix Herrmann, a research analyst at DZ Bank AG in Frankfurt, said in e-mailed comments, forecasting the lira to weaken to 1.80 per dollar.

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