Turkish lira rebounds from record low, eyes on Central Bank

ISTANBUL-Reuters

REUTERS Photo

Turkey’s lira recovered from a record low today as investors weighed up the prospect of a rate cut after the Central Bank governor said a decision on whether to hold an early policy meeting would be made following tomorrow’s inflation data.

The lira, which hit a record low of 2.4483 on Jan. 30, firmed to 2.4280 against the dollar by this morning. 
“If inflation falls significantly, then we are going to hold an interim meeting to evaluate inflation outlook,” Governor Erdem Başçı told reporters on the sidelines of a central banking conference in Budapest.

“Conditional on the strength of disinflation we will decide whether to have a meeting or not,” he said. 

On Jan. 27 he said an inflation fall of more than 1 percentage point could trigger an interim meeting.

According to the median forecast of 17 economists in a Reuters poll on Jan. 28, consumer price inflation was expected to fall to 6.80 percent year-on-year in January from 8.17 percent in December.

Prospects for an early rate cut became more uncertain after the Central Bank said on Jan. 30 movements in markets were not consistent with the degree of caution on the rate cut cycle envisaged by the bank.

Analysts said the bank’s statement signaled the bank may not cut rates as deeply as previously expected or may not even hold an interim meeting this week.

The bank cut its policy rate by 50 basis points last month but faced criticism from key government figures for not cutting more sharply before a June national election, fuelling investor worries about political interference in monetary policy.

In Central Bank kept a tight monetary policy for most of 2014 due to stubbornly high inflation. Consumer prices fell more than expected in December however, and are seen declining year-on-year in January on the back of plunging oil markets.

The lira has long been under pressure due to potential rate hikes by the U.S. Federal Reserve, signaled for later this year.

The benchmark 10-year government bond yield rose to 7.18 percent from a spot close of 7.13 percent on Jan. 30.