Turkish Lira Drops Amid Global Selloff as Inflation Accelerates

  • Inflation quickens more than analysts estimated in December
  • Weak Chinese data, Mideast tension spur rout in risky assets

The lira fell to a three-week low as inflation accelerated more than estimated, adding to pressure on Turkish assets caught in a broader rout across emerging markets.

The currency slid 1.5 percent to 2.9659 against the dollar at 5:20 p.m. in Istanbul. The Borsa Istanbul 100 Index of stocks declined 1.7 percent and bonds fell, sending the yield on the nation’s 10-year debt up 32 basis points to 11.06 percent, surpassing the two-year rate for the first time since February, on a closing basis.

Chinese data signaling manufacturing weakened for a fifth month and rising tension in the Middle East spurred a selloff in developing countries that pushed equities down the most since August. Turkish inflation rose to 8.81 percent last month, the highest in more than a year, rekindling concern over the central bank’s failure to increase interest rates in December to support the currency and reign in price growth.

Turkey will underperform other emerging-market currencies because the “anti-inflation credibility of the central bank was eroded” by the decision to leave all the policy rates unchanged, Koon Chow, a currency strategist at Union Bancaire Privee in London, said by e-mail. “That decision, plus the inflation result, will reinforce expectations that the central bank is acting dovishly and in turn will not be of much help.”

Inflation Risks

The lira slid 20 percent against the dollar last year, the most since 2008. Turkey’s central bank has left interest rates unchanged since February.

The acceleration in inflation exceeded the median estimate of economists in a Bloomberg survey for the rate to rise to 8.5 percent in December from 8.1 percent in November. The government’s 30 percent increase in the minimum wage may add as much as 2.2 percentage points to consumer-price growth, Deputy Prime Minister Mehmet Simsek said on NTV on Monday.

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