Lira Gains on Relief Turkey Rate Cut Isn’t as Big as Some Feared
Lira Gains as Traders Look Past Bigger-Than-Expected Rate Cut
(Bloomberg) -- While Turkey’s interest-rate cut was bigger than some expected, lira traders rejoiced that it wasn’t as deep as feared.
The currency advanced as much as 1.5%, the most among its major peers globally, after the central bank lowered the one-week repo rate by 325 basis points, 50 basis points more than the median estimate in a Bloomberg survey. Some had speculated policy makers would slash rates much more aggressively after President Recep Tayyip Erdogan suggested over the weekend that Turkey would lower rates into the single digits “soon.”
The reduction was also in line with swap pricing, a sign that the monetary authority wasn’t looking to fight the market.
While the cut to borrowing costs brings the nation’s real rate down to 1.5% -- at least a percentage point below that of South Africa and Russia -- inflation is seen slowing by some 500 basis points to below 10% through October. That has given Governor Murat Uysal room to unwind some of the monetary tightening delivered in the midst of a currency crisis last year without completely sacrificing the real rate on offer.
“I continue to think that the central bank can and will ease further,” said Magdalena Polan, a global emerging-market economist at Legal & General Investment Management in London. “Well argued and explained easing should support the recovery and have limited negative impact on the lira.”
The nation’s ten-year bond yield dropped 65 basis points to 15.1%, near the lowest level since early August, and stocks traded at the highest level since July. The lira traded 1.5% stronger at 5.6648 per dollar as of 3:06 p.m. in Istanbul, extending its rally after the European Central Bank cut interest rates further below zero and said it will start open-ended bond purchases.
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--With assistance from Selcuk Gokoluk.
To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, ;Onur Ant at oant@bloomberg.net, Paul Wallace, Robert Brand
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