Lira Weakens 3rd Day as Economy Minister Sees Slowing Inflation

The lira dropped for a third day against the dollar after Economy Minister Nihat Zeybekci said inflation will fall to around 6 percent by the end of the year, spurring speculation the government will push for lower rates.

The Turkish currency depreciated 0.4 percent to 2.1416 per dollar at 5:30 p.m. in Istanbul, the weakest level since April 16. Yields on two-year government notes climbed 14 basis points to 9.84 percent, biggest increase in almost three weeks.

The central bank will keep its benchmark one-week repurchase rate unchanged at 10 percent when its monetary-policy committee convenes April 24, according to all 16 economists surveyed by Bloomberg. Two of the analysts predict a cut in the overnight lending rate from 12 percent. Zeybekci told television channel Kanal 24 that the effect of currency weakness on inflation will drop from May onwards, with price increases slowing to around 6 percent by the end of 2014.

“The government is saying it does not see a big problem with inflation and the central bank should help support the economy by easing,” Cem Tozge, a money manager at Ata Invest in Istanbul, said by telephone. “The central bank may cut the upper end of the rates to 11 percent.”

Central bank Governor Erdem Basci said on April 7 he may consider “measured steps” to reduce the cost of borrowing. Policy makers more than doubled the benchmark interest rate following an emergency meeting on Jan. 28 after the lira declined to a record 2.39 per dollar the previous day. The currency is 5.4 percent weaker since an investigation into government graft and embezzlement became public on Dec. 17.

The lira has recovered 2.3 percent since March 30 local elections as victory for Prime Minister Recep Tayyip Erdogan damped concern political instability will worsen. Erdogan demanded on April 4 that the central bank should call an off-schedule monetary policy meeting to cut interest rates.

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