Lira Heads for Highest This Month as Protests Subdued in Turkey

The lira gained for a third day, set for its highest level this month, and bonds rose as calm returned to Istanbul’s Taksim Square after two weeks of clashes between anti-government demonstrators and riot police.

The Turkish currency strengthened 0.6 percent to 1.8635 per dollar by 5:06 p.m. in Istanbul, poised for its highest since May 29. Yields on two-year benchmark notes fell for a second day, dropping six basis points, or 0.06 percentage point, to 6.74 percent.

Prime Minister Recep Tayyip Erdogan, the target of protesters’ anger over what they say is his autocratic style, met late yesterday with a group said to represent the demonstrators’ concerns. Several thousand protesters went to Taksim late yesterday, chanting slogans against the government as riot police deployed around the square looked on. Turkey’s central bank sold dollars two days ago and tightened funding by halting its one-week repo auctions at its policy rate for the first time in more than a year.

“The political tensions have eased and the Turkish central bank has used the tools at its disposals,” Murat Toprak, the London-based head of European, Middle East and Africa currency strategy at HSBC Holding Plc, said in e-mailed comments. “The combination of tighter lira liquidity and selling dollars has had a positive impact on the lira.”

Turkish stocks extended gains, with the main index adding 0.9 percent in Istanbul, paring its loss this month to 9.8 percent.

Currency Volatility

Turkey’s central bank is obligated to intervene in extreme currency volatility, Governor Erdem Basci said at a conference in Giresun province yesterday. The lira’s volatility for the past three months rose for a fifth day to the highest since Oct. 9. The central bank sold $250 million in five currency auctions two days ago, after the lira reached its weakest level since December 2011 a day earlier.

“The central bank is giving a strong message that it would do whatever it takes to stabilize the currency and prevent a currency crisis that would lead to a further loss of confidence amongst international investors,” Bernd Berg, a global emerging-market foreign-exchange strategist with Credit Suisse Group AS in Zurich, said in e-mailed comments.

At least four people have died in clashes, which spread nationwide after May 31, and the Turkish Medical Association says more than 4,000 people have been treated at hospitals. The demonstrators say Erdogan’s Islamist-rooted government is increasingly unwilling to countenance dissent.

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