Rate-Cut Bets Set Turkish Lira on Longest Losing Steak Since May

  • Currency set for fifth day of losses against the dollar
  • Turkey revises growth forecast down, deficit forecasts higher

Turkey’s currency headed for a fifth day of losses against the dollar after the government announced plans to spend its way out of a slowing economy, adding to the impact of a series of interest-rate cuts.

The lira weakened 0.8 percent to 3.0421 per dollar as of 4:19 p.m. in Istanbul after Prime Minister Binali Yildirim lowered growth forecasts and said the country’s budget gap will probably reach 1.9 percent of output in 2017, up from a previous 1 percent target. That added to pressure from a selloff across emerging-market currencies, fueled by wagers the Federal Reserve will raise U.S. interest-rates this year.

While lower borrowing costs and more public spending are a tonic for an economy that this year has weathered an attempted coup, a collapse of its tourism industry and two credit downgrades, it also risks cutting into the currency’s yield and reducing its appeal to investors. The new fiscal targets come after the central bank lowered its overnight-lending rate by 250 basis points since March.

“The risk now is that the central bank will ease monetary policy rapidly, which will set the lira up for losses later on,” said London-based analyst Tatha Ghose at Commerzbank AG in an e-mailed note. He expects the lira to depreciate to around 3.20 per dollar by year-end.

Prime Minister Yildirim said the economy won’t revert to its longstanding target of 5 percent annual growth until 2018. Gross domestic product will grow 3.2 percent this year and 4.4 percent in 2017, down from earlier forecasts of 4.5 percent and 5 percent, he said.

Wagers from more monetary stimulus were also reinforced on Monday after inflation slowed to the lowest level in more than a year, prompting investors to bet policy makers will step up the pace of interest-rate cuts.

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