Erdogan Takes Wheel of Turkey’s Economic Coordination Board

  • President to chair economy board instead of prime minister
  • Board expected to discuss slide of lira at Erdogan’s palace

Turkey’s President Recep Tayyip Erdogan will lead a meeting of the economic coordination board on Wednesday, a day after a session under the chairmanship of Prime Minister Binali Yildirim to discuss the slide of the lira was canceled.

Government officials said ministers in charge of the economy and senior advisers are expected to attend the 7:30 p.m. meeting at the presidential palace in Ankara. On Thursday, the central bank is to hold its monthly rates meeting, and a growing number of economists expect the first rate rise in almost three years.

Read more: Plunging Lira Triggers Bets Turkey Will Reverse Course on Rates

The lira, which depreciated 9 percent against the dollar this month, initially bounced higher after Wednesday’s meeting was announced before extending losses. The currency traded 0.4 percent weaker at 3.3965 per dollar at 1 p.m. in Istanbul. Yields on two-year sovereign lira debt jumped by the most since July, to 10.66 percent, and 10-year yields rose 9 basis points to 11.23 percent, highest on a closing basis since January.

Consensus Breaking

Some investors are predicting that the central bank may defy calls from Erdogan and other politicians who have advocated lower interest rates to boost a flagging economy. Seven of 24 analysts surveyed by Bloomberg predict that the central bank will end its easing cycle and raise the main one-week repo rate on Thursday. The median forecast is that the bank will keep all three of its main interest rates on hold.

Even a rate hike "would be unlikely to calm the volatility in the lira," Istanbul-based brokerage Deniz Invest said in its morning note.

JPMorgan Chase & Co. said Wednesday that the lira was its highest conviction regional short trade, citing factors including rising political risk before an expected referendum next year on increasing Erdogan’s powers, and Turkey’s vulnerability to higher U.S. yields. The currency will probably weaken to 3.50 per dollar by year-end and to 3.65 by the end of 2017, analysts including Anezka Christovova said in the report.

Expectations of higher interest rates in the the U.S., combined with an emerging market sell-off since Donald Trump’s election victory on Nov. 8, have made the lira the second-worst performing major currency tracked by Bloomberg in the period.

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