Istanbul - The Turkish lira fell to a record low as price and tax increases curtailed bets of a possible interest-rate increase.
The lira weakened as much as 1.8 percent to 2.1873 against the dollar by 2:53 p.m. in Istanbul, the lowest since Bloomberg started tracking the currency in 1981.
The lira tumbled 17 percent last year, the second-biggest drop among emerging markets in Europe, the Middle East and Africa after the South African rand as a corruption probe led three ministers to quit.
The benchmark stock index lost 2.7 percent today.
The government raised special consumption taxes on some cars, alcoholic drinks, cigarettes and mobile phones, according to a decision published in the official gazette yesterday.
The annual salary increase for minimum wage-earners will be 11 percent for this year, according to Labor Minister Faruk Celik on December 31.
“I have my doubts that the central bank will raise interest rates and contract demand further,” Ugur Kucuk, a fixed-income strategist at Is Investment Securities, said in e-mailed comments today.
Higher rates “may affect growth badly, as it will come on top of the tax hikes,” he said.
Yields on two-year benchmark bonds climbed as much as 41 basis points to 10.51 percent, the highest since January 2012 on a closing basis.
They rose 3.95 percentage points last year in the biggest increase after Brazil among 20 emerging markets tracked by Bloomberg.
Corruption Probe
The two-year yield has climbed more than a percentage point since the sons of three ministers and the head of state-run Turkiye Halk Bankasi AS were arrested on December 17 amid probes into bribery, money laundering, gold smuggling and corruption in government tenders.
“In our recent emerging markets quarterly publication, we recommended investors stay short duration on cash bonds,” Koon Chow, an emerging markets strategist at Barclays Plc in London, wrote in e-mailed comments.
“Our recommendations stand particularly as we do not see an end to the lira depreciation pressures in the coming weeks,” he said.
Turkish assets have faced pressure since mid-2013 as part of a wider rout in emerging markets triggered by Federal Reserve plans to trim its $85 billion monthly bond-buying program, with policy makers agreeing on the first reduction last month.
Turkey’s current-account gap probably widened to 7.2 percent of gross domestic product last year from 6.1 percent in 2012, according to the median of 29 forecasts compiled by Bloomberg.
US Yields
“We will continue to see the weaker current-account stories including South Africa, Indonesia and Turkey under pressure as US Treasury yields continue to head north,” Simon Quijano-Evans, head of emerging-markets research at Commerzbank AG in London, said in e-mailed comments today.
The yield on 10-year US Treasuries rose to 3.02 percent, the highest in more than two years.
Ten-year yields jumped 1.27 percentage points in 2013.
They have averaged 3.49 percent in the past decade.
The benchmark Borsa Istanbul 100 index retreated 2.7 percent to 65,956.87 at 2:54 p.m. in Istanbul, extending a two- day decline to 3 percent.
Turkiye Garanti Bankasi AS and Akbank TAS both slumped 3 percent, while Turkiye Halk Bankasi AS, whose chief executive officer remains under arrest as part of a graft probe, dropped 4.1 percent.
The Turkish central bank will sell at least $100 million today, the lowest it offers since December 19, as part its plan to sell a minimum $3 billion this month to shore up the lira.
The bank sold $600 million on each of 2013’s last two days. - Bloomberg News