Azernews.Az

By Bloomberg

The lira climbed from the lowest close on record on speculation the Turkish President Recep Tayyip Erdogan will signal he supports the central bank’s autonomy amid the currency’s worst start to a year since 2009.

The lira rose as much as 1.3 percent to 2.6035 per dollar, the most among 24 emerging-market peers, before Erdogan holds a meeting on the economy with central bank Governor Erdem Basci. Data on Wednesday showing the slump in crude led to a better- than-expected improvement to Turkey’s current-account deficit helped trim the currency’s 11 percent depreciation this year.

Turkish politicians are toning down their rhetoric on the central bank after their calls for deeper interest-rate cuts stoked concern among investors that the government was trying to undermine Basci’s authority. The prime minister’s office late yesterday said the central bank is independent in the tools it uses to carry out monetary policy and has had a good track record since 2002.

“Markets anticipate Erdogan might give encouraging signals to the public that he and the government support the bank and its independence,” Fatih Keresteci, a strategist at HSBC Bank in Istanbul, said by e-mail.

The lira gained 0.9 percent to 2.6158 per dollar by 2:18 p.m. in Istanbul, the only currency to advance in developing Europe other than the ruble. Yields on two-year notes rose one basis point to 8.86 percent, climbing for a sixth day. The Borsa Istanbul 100 Index rose 0.6 percent from a four-month low.

Rate Cuts

Basci and Deputy Prime Minister Ali Babacan will brief Erdogan at 4:45 p.m. in Ankara, according to a report in state- run Anadolu news agency. After an eight-hour summit on the economy on Tuesday, the prime minister’s office said “our central bank is taking the necessary measures at the necessary time in line with its monetary-policy target.”

The current-account deficit narrowed to $2 billion in January, beating the median estimate for a $2.75 billion shortfall, data showed today. Core inflation slowed to an 13- month low of 7.7 percent last month even as headline consumer- price increases accelerated to 7.6 percent.

The trade data show lira weakness “runs against the underlying fundamental story,” Timothy Ash, chief emerging- market economist at Standard Bank Plc in London, said by e-mail. “If politicians had kept their thoughts on monetary policy to themselves, the lira would have been strong/stable, inflation and the current-account deficits would be moderating, leaving significant scope for further rate cuts.”

The central bank’s inflation target is 5 percent, and meeting this objective has been hindered by the lira’s 14 percent slide in the past 12 months.

Convincing Markets

The central bank lowered its key rate by 250 basis points to 7.5 percent since more than doubling it in an emergency meeting in January 2014. Politicians have pressured Basci for deeper reductions to support the economy. This leaves Turkish assets more vulnerable to outflows as the U.S. moves closer to raising interest rates that will damp demand for riskier assets.

The selloff this year has driven the lira’s 14-day relative-strength index above 70 since March 3, a threshold that indicates to some technical analysts that an asset is oversold.

“The best-case scenario is if the statements following today’s meetings convince the markets that the Central Bank of Turkey will not rush to cut rates on March 17, and that this will not cause more political pressure,” said Pinar Uslu, a strategist at ING Bank AS in Istanbul, referring to the date of the next rate-setting meeting.