Turkish Markets Rise on Bets Governor Switch Won't Derail Policy

  • Naming of deputy as central bank governor cheers investors
  • Lira climbs most in two weeks against dollar; stocks gain 1.8%

The lira strengthened the most in two weeks and Turkish bonds climbed to a five-month high on optimism the country’s monetary policies won’t be derailed when central bank Governor Erdem Basci’s term expires next week.

The currency gained as much as 1.1 percent against the dollar, 10-year government bonds rose to the highest level since November and the benchmark stocks gauge finished at the strongest level in more than nine months. Political leaders signed a decree to name Murat Cetinkaya, a deputy governor, as the next chief policy maker, a government spokesman said after a weekly cabinet meeting on Monday.

The choice is easing investor concern the end of Basci’s term will mean a shift from a monetary policy in which the central has lowered interest rates only once in the past 13 months, with its March reduction. Policy makers led by Basci have faced persistent pressure from government officials, including President Recep Tayyip Erdogan, to cut borrowing costs to boost growth even as the central bank missed its inflation target.

It will “reassure the markets that President Erdogan’s clear desire for interest rates to be lowered hasn’t translated into the appointment of a malleable and unknown governor inclined to do the president’s bidding,” William Jackson, a senior emerging-markets economist at Capital Economics in London, said in a report before Cetinkaya’s appointment was confirmed.

Stocks Rise

The lira traded 0.8 percent higher at 2.8284 as of 5:52 p.m. in Istanbul. The yield on 10-year bonds dropped 20 basis points to 9.78 percent. The Borsa Istanbul 100 Index jumped 1.8 percent. Akbank TAS’s 2 percent gain led the advance, followed by steel-maker Eregli Demir ve Celik Fabrikalari TAS’s 4.2 percent increase.

Both Erdogan and Prime Minister Ahmet Davutoglu agreed to choose Cetinkaya, a member of the rate-setting Monetary Policy Committee, as the next governor, a person familiar with the matter said earlier, asking not to be named because the announcement had yet to be made.

Choosing someone from within the central bank lowers “the chances of some tail risk scenarios, like an overly accommodative stance in the short-term,” Erkin Isik, a strategist at Turk Ekonomi Bankasi AS in Istanbul, wrote in an e-mailed note before the announcement.

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