Turkey’s Lira Jumps as Erdogan Aide Hints at Pause in Rate Cuts

  • Currency advances most among 24 emerging markets vs dollar
  • Central bank would ‘pass this month’ if needed: Yigit Bulut

Turkey’s lira strengthened the most in a month after comments from an adviser to President Recep Tayyip Erdogan fueled bets the central bank will keep rates unchanged in October.

The currency gained 0.6 percent to 3.0757 per dollar as of 4:58 p.m. in Istanbul, the most in a ranking of 24 emerging markets tracked by Bloomberg. The central bank may pause a cycle of interest-rate cuts that started in March when it meets on Thursday if warranted by economic conditions, Yigit Bulut, a senior aide to the president, said in an interview Tuesday.

The monetary authority has lowered its overnight lending rate by 250 basis points since March amid pressure from politicians to stimulate Turkey’s slowing economy. That’s trimmed the yield on the currency, which has weakened the most among emerging markets over the past month. The median forecast of economists surveyed by Bloomberg is for another 25 basis-point reduction.

Bulut’s comment “indicates lessened political pressure on the bank regarding tomorrow’s decision,” Finansbank’s Istanbul-based economist Gokce Celik, who no longer expects the central bank to cut rates on Thursday, said by e-mail. “Left to its own devices, the central bank is more likely to refrain from delivering another cut and adding further to the pressure on the currency.”

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Bulut’s comments echoed remarks from Cemil Ertem, another adviser to President Erdogan, who last week said the central bank isn’t on “auto-pilot” and that a lira weaker than 3.1 per dollar was unjustified.

“Surveys show that a very large portion of the economists still expect a 25 basis-point ceiling cut, but we do not think that this is the consensus among market participants,” JPMorgan Chase & Co.’s London-based analyst Yarkin Cebeci, who sees the central bank pausing on Thursday, wrote in an e-mailed note. “As the lira weakens, policy makers seem to be getting concerned about the impact of this weakness.”

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