Lira Rises Second Day on Signs Erdogan to Soften Rate-Cut Calls

The lira rose for a second day on speculation President Recep Tayyip Erdogan will tone down calls for the central bank to cut interest rates as the government seeks to revive an economy that probably grew in 2014 at the slowest pace in two years.

The Turkish currency advanced 0.9 percent versus the dollar after Erdogan’s office said on its website the president’s “sensitivity” on the subject of rates was addressed at a meeting with Central Bank Governor Erdem Basci yesterday. The main stock index pared gains and traded up 0.1 percent at 7:22 p.m. in Istanbul while two-year benchmark government bonds climbed for the first time in seven days.

Erdogan may be softening his public stance on borrowing costs after months of pressure on the central bank to speed up rate cuts, according to Simon Quijano-Evans, head of emerging-market research at Commerzbank AG in London. Basci has cut the benchmark rate 250 basis points to 7.5 percent since more than doubling it in January 2014 to halt a run on the lira.

“Perhaps Erdogan will not openly launch attacks against the central bank in the media, near-term, and this will provide for a calmer lira backdrop,” Quijano-Evans said in an e-mailed note. Still, the “ broad status quo was maintained.”

Preserve Climate

Participants in yesterday’s meeting “underlined the need to preserve the current climate of stability and confidence,” Erdogan’s office said. Deputy Prime Minister Ali Babacan and the president’s chief adviser, Yigit Bulut, also attended. Turkey holds parliamentary elections in June and the central bank’s next rates meeting is March 17.

Turkey’s economic growth may have slowed to 3 percent last year from 4.1 percent in 2013, according to the median of 29 economist forecasts in a Bloomberg survey.

The bank has published the presentation given by Basci to Erdogan, in which the governor emphasized the need for stability and for an improvement in inflation expectations to allow borrowing costs to be reduced. Consumer prices rose 7.55 percent in February and participants in the Bloomberg survey expect that to decline to 6.5 percent by year-end.

Calming Markets

“There was not much tangible in the announcement but it seems like they agreed on calming the markets a bit,” Vedat Mizrahi, head of research at Unlu Securities in Istanbul, said by e-mail.

Turkcell, the nation’s biggest mobile operator rose 1.6 percent, leading index gains, as 47 stocks rose and 42 fell. Akbank TAS climbed 0.5 percent, rising for a second day.

Twenty-one out of 24 emerging market currencies rose against the dollar Thursday. The Turkish lira gained against every other emerging market currency except the Russian ruble and Mexican peso, with the dollar index falling for the first time in seven days.

The yield on two-year sovereign bonds decreased six basis points to 8.8 percent.

“I think the market is cautiously positive after the meeting,” Pinar Uslu, a strategist at ING Bank in Istanbul, said by e-mail. “There is some relief, but the question is how long it will last?”

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