Turkish Lira Untroubled as Central Bank Reaffirms Tight Stance

  • Currency little changed as central bank maintains rates
  • Officials say their tight monetary stance will continue

Turkey’s lira was unfazed as the nation’s central bank left rates unchanged and indicated it will maintain a tight monetary stance until the inflation outlook improves significantly.

The lira gained in the minutes after the decision before trading 0.7 percent lower at 3.5140 per dollar as of 2:22 p.m. in Istanbul, little changed from before the announcement and weakening in line with most of its emerging market peers. The monetary authority left its three benchmark rates unchanged, in line with analyst expectations, and said the “tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement.”

While headline consumer price growth slowed from a nine-year high in May, banks including JPMorgan Chase & Co see inflation accelerating again in the second half of the year. Investors are looking for signs that the monetary authority remains committed in maintaining a tight monetary stance throughout the dip. The central bank has pushed the weighted cost of funding up by more than 350 basis points to the highest since at least 2011 this year.

A measure of one-month implied volatility for the lira rose to 10.40 percent, after closing at a seven-month low of 10.31 percent on Wednesday. The so-called volatility adjusted carry on the currency -- the ratio on the lira’s implied yield and volatility -- held above 1 on Thursday, the highest since May 2016.

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