Lira Poised for Record Low as Deficit Adds to Turkish Risks

  • Currency slides after current-account data misses estimates
  • Bonds fall for a third day, pushing 10-year yields toward 10%

Turkey’s currency headed for a record low as a wider-than-expected current-account deficit added to the nation’s growing list of economic and political risks.

The lira slid 0.2 percent to 3.088 per dollar as of 5 p.m. in Istanbul, weakening past a record closing price set in July. While government data showed the nation’s current-account shortfall in August fell on a month-by-month basis, at $1.78 billion, it’s almost $400 million more than the median of 11 forecasts compiled by Bloomberg.

The deficit is the latest in series of events to weigh on the lira. Economic growth has slowed, the government’s budget deficit is set to widen and the country extended a state of emergency it imposed in July after an attempted coup. Meanwhile the central bank slashed borrowing costs this year, diminishing the appeal of Turkish assets, as investors brace for higher U.S. interest rates that may spur outflows from emerging markets.

Turkey’s macro-economic indicators “don’t look fantastic,” said Luis Costa, a London-based currency strategist at Citigroup Inc. who this week recommended buyuing the dollar against the lira. “Rebalancing of the current-account deficit is probably over, the nation’s fiscal position is gradually deteriorating and inflation may remain high in the medium-term.”

Inflation, which slowed for two straight months to 7.28 percent in September, is well above the central bank’s target of 5 percent.

The lira has declined 5.6 percent this year, the worst performer among 24 emerging-market currencies after the Argentine and Mexican pesos.

Turkish 10-year bonds fell for a third day, pushing the yield up 10 basis points to 9.94 percent, the highest since July 26 on a closing basis.