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By Bloomberg

The lira strengthened amid speculation Turkey’s central bank won’t cut interest rates on Tuesday after political pressure for lower borrowing costs eased.

The currency climbed 0.6 percent to 2.6239 per dollar at 1:10 p.m. in Istanbul after declining as much as 2.4 percent to a record 2.6485 on Friday. That retreat, the worst among 24 emerging-nation currencies tracked by Bloomberg after Brazil’s real, was exacerbated by concern Turkish assets are vulnerable to the prospect of higher U.S. interest rates.

A meeting between central bank Governor Erdem Basci and President Recep Tayyip Erdogan last week spurred optimism the government will tone down calls for deeper rate cuts, easing investor concern the monetary authority’s independence was under threat. Policy makers will probably keep the key rate at 7.5 percent on Tuesday, according to 15 of 19 analysts in a Bloomberg survey.

The lira rose “on expectations the central bank will pause its easing cycle,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank in Geneva, said in an e-mail Monday. “President Erdogan and the government visibly softened the tone since last week. With a deterioration in inflation expectations, the central bank has little to justify any further rate action.”

Twelve-month inflation expectations rose to 6.78 percent in March from 6.69 percent a month earlier, a central bank survey of economists and business leaders showed on Friday.

Pressures Ease

Policy makers lowered the key rate 250 basis points to 7.5 percent in five moves since more than doubling it to 10 percent in January 2014 to shore up the lira after it fell to a then- record 2.39 per dollar.

Turkish politicians relaxed their rhetoric last week. The central bank is independent in the tools it uses to carry out monetary policy and has had a good track record since 2002, the prime minister’s office said March 10.

Different opinions shouldn’t overshadow the central bank’s independence and its successful performance, Economy Minister Nihat Zeybekci said a day later, the state-run Anadolu news agency reported.

“The political pressures seem to have eased after the meeting,” Deniz Cicek, an economist at Finansbank AS in Istanbul, said in an e-mailed note this morning. “There is room for a small cut of 25 basis points in the policy rate if the monetary policy committee wishes to please the government.”

‘No Room’

Still, he sees “absolutely no room for a decrease at the ceiling of the interest-rate corridor,” referring to the upper end of the rate corridor that allows the central bank to defend the lira at times of volatility.

The lira was also buoyed by declining oil prices as the nation is a net importer of the fuel, analysts said. Brent crude slumped 1 percent Monday, declining for a third day to $54.11.

Lira gains “may be somewhat related to the decline in oil prices and mainly the USD correction,” Bora Tamer Yilmaz, an economist at Ziraat Yatirim brokerage in Istanbul, said by e- mail.

The Bloomberg Dollar Spot Index weakened 0.2 percent after a 0.8 percent advance Friday.

Slowing Growth

Turkey’s unemployment rate rose to 10.9 percent in December, the highest since Jan. 2011, according to data published by the state statistics institute in Ankara on Monday.

Bank of America Merrill Lynch cut its 2014 growth estimate to 2.7 percent from 3 percent and its 2015 forecast to 3.2 percent from 3.7 percent previously.

While the central bank monitors all data, “given the pressure on the lira, the market expects the central bank to hold its rates this month,” Pinar Uslu, a strategist at ING Bank in Istanbul, said by e-mail. “I do not think the CBT would rush to decrease its rates.”