Turkish Lira Seen Outperforming Peers on Central Bank Backstop

(Bloomberg) -- Turkey’s central bank hasn’t boosted the lira, but it may have saved it ahead of elections.

While the currency quickly erased a jump after policy makers raised a key rate more than expected on Wednesday, it is still beating peers this week. The central bank has provided a buffer from the torrent of bad news that is hurting emerging markets, from higher U.S. Treasury yields to rising oil prices.

Turkish Lira Seen Outperforming Peers on Central Bank Backstop

The currency’s recent outperformance against high-yielding peers will continue, says Henrik Gullberg, a strategist at Nomura International Plc. Investors are likely to interpret Wednesday’s central bank decision as a sign that policy makers won’t hesitate to backstop the currency with higher rates ahead of elections in June, he said.

The lira has now recovered over 2 percent after plunging to a record low earlier this month, though bears think the currency may stay under pressure because of an overheating economy. It strengthened a third day against the greenback Thursday, gaining as much as 0.4 percent to 4.0663 per dollar.

“This rates move should provide a short-term stabilization of the lira ahead of early elections,” said Kiran Kowshik, a strategist at UniCredit SpA. “The currency will resume depreciation at some point in the second half. But near-term gains are likely.”

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