Turkish markets, lira firmer on Fed meeting

ISTANBUL

REUTERS Photo

Turkish markets recovered on March 19, with the Turkish Lira at its firmest in two weeks and stocks rallying as investors back into emerging markets after the U.S. Federal Reserve (Fed) sounded a cautious tone on the timing of rate hikes.

The lira rebounded to 2.5610 to the dollar earlier in the session, its firmest since the beginning of March.

And the Borsa Istanbul’s 100 Index increased as much as 3 percent in early trade.

Both the lira and Turkish stocks have, however, significantly underperformed against other emerging markets this year. The lira is down around 12 percent this year, according to Reuters data, with a sharper decreasing trend than many other emerging currencies are.

Investors have been worried about the Central Bank’s independence amid the heated criticism over the bank by several ministers as well as President Recep Tayyip Erdoğan.

The controversies over the rates between the political figures and the Central Bank seemed to ease after the face-to-face meeting between Central Bank head Erdem Başçı and President Erdoğan as well as between Başçı and cabinet ministers, headed by Prime Minister Ahmet Davutoğlu last week.

Başçı said the bank would be able to achieve its main target of cutting inflation to less than 7 percent by the end of the year, as Anadolu Agency reported late March 18. Başçı also gave positive signals about other indicators of the economy.

The Fed on March 18 moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signaling it is in no rush to push borrowing costs to more normal levels, as Reuters reported.

The U.S. Central Bank removed a reference to being “patient” on rates from its policy statement, opening the door wider for a hike in the next couple of months while sounding a cautious note on the health of the economic recovery. Fed officials also slashed their median estimate for the federal funds rate – the key overnight lending rate – to 0.625 percent for the end of 2015 from the 1.125 percent estimate in December 2014.

“Just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient,” Fed Chair Janet Yellen said in a press conference after the statement. The dollar tumbled against other major currencies.