Turkey’s lira weakens to record low

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Turkey’s lira

Reuters.

Turkish lira banknotes are seen in this picture illustration taken in Istanbul in this file picture.

Istanbul - Turkey’s lira tumbled to a record against the dollar and euro while bonds fell as Prime Minister Recep Tayyip Erdogan’s government purged police leadership in a fight back against a probe into official corruption.

The lira dropped as much as 1.1 percent to 2.0947 per dollar, the weakest since at least 1981, before trading 1 percent lower at 3:44 p.m. in Istanbul.

The currency also fell to a record 2.8636 per euro.

The declines were the biggest across emerging market currencies tracked by Bloomberg.

Yields on two-year benchmark notes increased 25 basis points to 9.61 percent, the highest since September 3.

“Political risk has increased considerably,” Melih Onder, chairman of Logos Portfoy Yonetimi AS, which manages about 180 million liras ($86 million), said by phone from Istanbul.

“It took a few days for foreign investors to digest what has happened. This selloff could continue for as long as 10 days.”

The government dismissed 14 department chiefs at the national police today, NTV television reported, in addition to some 50 yesterday, according to a Bloomberg HT report.

The dismissals came after police detained dozens, including the head of a state bank and the sons of three cabinet ministers, in an inquiry into graft.

The central bank in Ankara published a statement today saying it could increase the amount of dollars it sells for liras to “as much as 10 times” the announced minimum amount on days of excessive lira volatility.

The bank said earlier today that it would sell $50 million in today’s auction and $250 million on December 23.

 

‘Financial Junta’

 

Bulent Gedikli, a board member of Erdogan’s ruling Justice and Development Party, said Turkey was under attack by a “financial junta” seeking to undermine confidence.

“There are some who invent concepts like ‘Fragile Five,’ that include Turkey,” Gedikli said in an interview with the state-run Anatolia news agency today, referring to a Morgan Stanley grouping of Turkey, India, Indonesia, South Africa and Brazil of the big economies it says are most vulnerable to portfolio outflows.

“Those who say these things clearly constitute an economic junta.”

A state bank was “targeted” in the graft investigation because it was “the bank which contributed most to Turkey’s opening,” Gedikli said.

 

Halkbank CEO

 

Suleyman Aslan, chief executive officer of state-run Turkiye Halk Bankasi AS, is among those taken into police custody and was being escorted by police to a courthouse today, according to Anatolia.

The shares of Halkbank, as the lender is known, rose 4 percent to 13.05 lira, paring this week’s decline to 16 percent.

The probe has sparked concerns of an escalating confrontation between Erdogan and US-based Islamic cleric Fethullah Gulen.

Some politicians from Erdogan’s party signaled that Gulen was behind the operation, which he has denied.

The Turkish currency has dropped 15 percent against the dollar this year, the fourth-worst performance among 24 major emerging market peers tracked by Bloomberg, and 18 percent versus the euro.

Two-year benchmark yields climbed 457 basis points since May 22, when US Federal Reserve Chairman Ben S. Bernanke first discussed curbing asset purchases.

The lira may depreciate to as low as 2.1037 per dollar by the end of the year, according to Tugberk Citilci, deputy manager at Sanko Securities in Istanbul.

“The central bank’s real concern is the pass-through effect to inflation,” Citilci said in an e-mail today.

“The currency’s weakening comes in addition to the central bank missing its target of 5 percent inflation this year. It will be a tough start to the new year for the bank.”

 

‘Aggressive Action’

 

The currency’s decline has increased the possibility of “an aggressive reaction” from the central bank, Citigroup economists Ilker Domac and Gultekin Isiklar said in an e-mailed report today.

In case “unfavourable developments” continue, the bank may have no choice but to raise rates, the economists said.

The central bank maintained its one-week repurchase rate at 4.5 percent on December 17.

It also held the overnight lending and borrowing rates unchanged at 7.75 percent and 3.5 percent, respectively.

The Borsa Istanbul 100 index advanced 0.9 percent to 69,738.12, paring its weekly drop to 5.8 percent, the worst since the five days ended August 23.

The index has retreated 11 percent this year.

“We’re used to such political developments,” Bulent Topbas, a strategist at Strateji Menkul Degerler AS in Istanbul, said in e-mailed comments today.

In the end, Turkey is established atop of the Byzantine civilisation -- political squabbling and intrigue never ends.” - Bloomberg News


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