Turkish Lira Falls to Record

BN-GR641_turkli_P_20150129080228Turkey’s currency weakened as much as 1 percent, declining 5.1 percent in two weeks, while benchmark two-year note yields climbed to the highest level since Dec. 18 and the Borsa Istanbul 100 Index slipped 0.5 percent. The central bank will be “held accountable” if it can’t manage foreign-exchange policy, state-run Anadolu news agency cited Erdogan as saying on Sunday.

The president’s comments come as a rift deepens between central bank Governor Erdem Basci and the government over interest rate policy with the economy forecast to grow at the slowest pace since 2012. Erdogan has repeatedly called for lower borrowing costs even after policy makers cut the benchmark rate 50 basis points to 7.75 percent last month to support growth.

“The movement is mostly due to the interest-rate debate that’s been going on,” Pinar Uslu, a strategist at ING Bank AS in Istanbul, said by e-mail. “The market could be trying to determine when or if the central bank will draw a line” by tightening liquidity or commenting on foreign-exchange volatility, she said.

The lira slid to 2.4080 against the dollar at 6:59 p.m. in Istanbul, making it the worst performer after Brazil in the past two weeks among 24 emerging markets tracked by Bloomberg. The two-year yield has jumped 149 basis points, or 1.49 percentage points, to 8.36 percent in the same period.
Basci Defends

“The strengthening or weakening of the dollar is not something for me to evaluate,” Anadolu cited Erdogan as saying at Istanbul Ataturk Airport before he departed on a visit to Bogota, Colombia. “If the central bank can’t manage this, then it will be held accountable for it.”

At a Group of 20 conference in Istanbul, Basci defended orthodox economic theory, saying history shows that monetary tightening is the solution to inflation. Erdogan has argued that cutting borrowing costs will bring the inflation rate down.

“The best contribution to growth from a central bank would be to maintain price stability,” Basci said.

Inflation slowed to 7.24 percent in January, compared with 8.17 percent a month earlier, the statistics office reported Feb. 3. Annual inflation is expected to fall to 6.2 percent this year, according to the median of 20 economist estimates compiled by Bloomberg.

Basci, who said last month he would hold an emergency meeting should inflation fall more than 1 percentage point, canceled the meeting after last week’s data. The central bank has lowered its benchmark one-week repurchase rate by 2.25 percentage points since more than doubling it to 10 percent in January last year to defend the lira. It is next scheduled to meet on Feb. 24.

“Everyone expects the central bank to cut rates at the next meeting so that’s the reason behind the sell-off in the lira,” Vedat Mizrahi, head of research at Unlu Securities in Istanbul, said by e-mail. This “resulted in profit taking and significant outflows from bonds which then trickled down to equities,” he said.