Turkish Lira Weakens as Traders Await Central Bank Rate Decision

  • Worst-performing emerging currency this quarter falls 3rd day
  • Central bank rates decision is due at 2 p.m. local time

Is Turkey Ready for a Rate Change?

Turkey’s lira fell to a record as investors weighed whether the central bank will support the beleaguered currency when it meets.

The currency has slumped more than any other across emerging markets this quarter and weakened to successive all-time lows since Donald Trump’s election victory stoked inflation expectations, driving U.S. yields higher and diminishing the appeal of riskier assets. While the median estimate of economists sees the bank keeping all rates unchanged, an increasing number expect a 25 basis-point increase to the one-week repurchase rate.

Turkish President Recep Tayyip Erdogan, who wants lower borrowing costs to boost growth, on Wednesday warned markets and policy makers they risked provoking his intervention, without specifying what kind. The central bank must decide how it will defend the currency without provoking the nation’s leader.

Read more: Erdogan Unleashes Fury at Markets on Eve of Turkey Rate Decision

The yield on Turkey’s two-year government bonds on Wednesday jumped the most since February 2015, a sign some investors expect the bank will eventually reverse a rate-cutting cycle that cut the overnight lending rate by 250 basis points since March. Turkey runs a current-account deficit of more than 4 percent of output and relies on foreign financing.

“We’re increasingly moving toward a scenario of ‘hike a bit soon or hike a lot later,’ but it doesn’t really matter,” Paul McNamara, a fund manager at GAM Ltd. in London who’s been “aggressively” underweight Turkish assets for months, said in an e-mail on Wednesday. “If the lira keeps weakening, rates are going up. Timing is just a detail.”

Turkey’s lira weakened 0.7 percent to 3.4189 per dollar as of 11:02 a.m. in Istanbul.

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