(Bloomberg) - Turkey’s lira slid to a record for a third consecutive day after Economy Minister Nihat Zeybekci said the central bank didn’t go far enough with rate cuts, arguing there’s no need to worry about the currency.
The foreign-exchange market “will find its own balance,” Zeybekci said on state TV channel TRT on Wednesday, helping spur a selloff that pushed the lira as low as 2.6006 per dollar on Thursday. Turkish bonds fell the most in emerging markets in the past month on concern Turkey will encroach on the central bank’s autonomy. President Recep Tayyip Erdogan said on Monday policy makers should take into account his warnings that interest rates are too high.
“Expectations are for the central bank to continue cutting rates in the coming months on political pressure,” Erkin Isik, a strategist at Turk Ekonomi Bankasi AS, said in an e-mailed note. “The bank is not taking any action against currency depreciation, which suggests that the lira has room to weaken further, in the absence of revival in global risk sentiment.”
The lira slumped as Citigroup Inc.’s decision to sell its remaining stake in Turkish lender Akbank TAS at a discount to the share price pushed the nation’s stock index to the lowest in almost three months. The currency fell for a seventh day, the longest losing streak since a 10-day rout through Jan. 24, 2014 that prompted a more than doubling of the key interest rate a few days later.
Citigroup Exit
Citigroup sold all of its remaining 9.9 percent holding Turkey’s second-largest bank by market value at 7.45 lira ($2.87) a share and took a loss of $800 million on its 2007 purchase. The stock closed at 8 liras on Wednesday and slid as much as 5.6 percent to a four-month low today.
“The fact that Citi wanted to sell earlier than planned could be a bad indication for the markets,” Cagdas Dogan, an analyst at BGC Partners Inc. in Istanbul, said on Wednesday. “It sort of implies that they expect them to keep on falling.”
The lira weakened 1.4 percent to 2.5981 per dollar by 5:41 p.m. in Istanbul, taking this year’s loss to 10 percent, the most after Brazil’s real among 24 emerging markets tracked by Bloomberg.
Investors have sold a net $536 million of Turkish debt this year as growing political pressure dented foreign-investor sentiment, Tomasz Noetzel, an analyst at Bloomberg Intelligence in London, said in a note dated March 5.
Policy Credibility
Central bank Governor Erdem Basci and Deputy Prime Minister Ali Babacan were told to “get your act together” by Erdogan on Monday, according to Hurriyet newspaper. Erdogan has repeatedly gone against economic orthodoxy in insisting that higher interest rates are a cause of inflation.
While recent rate cuts are positive, borrowing costs should have been reduced twice more by now, Zeybekci said on Wednesday. Policy makers lowered the key policy rate by 250 basis points to 7.5 percent since April 2014. They hoisted the rate to 10 percent from 4.5 percent in January 2014 as the lira hit a then-record 2.39 per dollar.
Two-year government yields have risen 1.1 percentage points since Jan. 20 despite a 0.75 percentage-point reduction in the central bank benchmark in the period. The yield rose 17 basis points to 8.56 percent on Thursday, the first increase in four days.
“Concerns about the central bank’s independence and criticisms about the rate cuts have continued to put pressure on the lira,” Pinar Uslu, a strategist at ING Bank in Istanbul said by e-mail.
Basci’s credibility was brought into question last month when he said he would call an emergency rates meeting if January inflation fell by 1 percentage point or more. The rate fell by 0.93 percentage point so the meeting didn’t take place. Policy makers are next scheduled to meet on March 17.
Twenty of the 24 emerging-market currencies tracked by Bloomberg have declined against the dollar this year as investors weigh the probable timing of Federal Reserve interest-rate increases.
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