Turkish currency weakens after presidential aide says currency justifies rate cut

ISTANBUL - Reuters

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Turkey’s lira weakened on April 8 after a presidential aide said its level justified an interest rate cut, increasing the political pressure on the central bank to cut rates.

Cemil Ertem told state broadcaster TRT Haber that the Turkish Lira, still not far off a record low hit last year, was in a “strong position” against the U.S. dollar.

“This is an important advantage for a central bank rate cut,” he said.

President Recep Tayyip Erdoğan has repeatedly railed against the high domestic cost of borrowing, equating high interest rates with “treason.”

The Central Bank cut the upper band of its interest rate “corridor” last month.

The lira weakened as low as 2.8710 against the dollar after Ertem’s comments from below 2.86 earlier. The currency hit a historical low of 3.0750 against the dollar on Sept. 24, 2015. 

Turkey is negatively diverging from other emerging markets on “continued talk of aggressive rate-cut cycle by government officials,” said TEB Investment strategist Işık Ökte in a note.

Investors are also concerned over the uncertain future of Central Bank Governor Erdem Başçı. Markets are waiting to see whether he is reappointed for another five-year term after April 19.

“We maintain our view that with the slowing fund inflows into emerging markets, the uncertainty of the central bank governor appointment until April 19 and the possibility of a series of rate cuts in overnight lending rate, could impact the lira negatively,” said İbrahim Aksoy, an investment strategist at HSBC Asset Management.

Industrial output rose a calendar-adjusted 5.8 percent year-on-year in February, the Turkish Statistics Institute said on April 8.

Markets were also watching a Moody’s review on Turkey expected later on April 8. Moody’s rates Turkey at Baa3 with negative outlook.