Lira firms nearly 1% against dollar

ISTANBUL, Oct 19, (RTRS): Turkey’s lira firmed nearly 1% against the dollar on Friday, as the prospect of severe sanctions from the United States waned after Ankara agreed to a ceasefire in northern Syria, raising expectations of a rate cut by the central bank next week.

The currency had been under pressure due to a deterioration of ties between Ankara and Washington over Turkey’s operation against the Kurdish YPG militia, which was a main US ally in the fight against Islamic State.

In meetings between the allies on Thursday, Ankara agreed to a ceasefire for five days while the YPG withdraws from Syrian border regions. US VicePresident Mike Pence said sanctions would be removed after the deal is implemented and no further sanctions would be pursued.

The lira stood at 5.7805 against the dollar at 1238 GMT, firming some 0.75% from Thursday’s close of 5.8250. It firmed to 5.7580 earlier.

It had weakened to 5.9395 this week in anticipation of the sanctions, which turned out to be softer than expected.

Jason Tuvey, senior emerging markets economist at Capital Economics, said while further sanctions were off the table for the moment, things could still go wrong with implementation of the ceasefire.

US prosecutors this week charged Turkey’s Halkbank with evading sanctions on Iran, a move which Turkey said was also related to its operation in Syria. Pence said he told Turkish officials that the case was a matter for the New York court that charged the bank.

Halkbank shares, which had plummeted following the news earlier this week, surged at Friday’s opening, rising some 7.16%. They were up 6.21% at 1221 GMT.

The main BIST100 share index was up 3.82%, while the banking index was up 5.93%.

Despite the ceasefire agreement, Republican Senator Lindsey Graham and Democratic Senator Chris Van Hollen will move “full steam ahead” with plans to impose stiff sanctions on Turkey.

QNB Finansbank chief economist Erkin Isik said the recent volatility in the lira had lowered rate cut expectations.

“Considering the agreement reached about Syria and the appreciation of the lira, we expect a 100 basis point cut from the monetary policy committee next week,” he said, citing improvements in inflation.

The central bank has already cut its policy rate by 750 basis points this year, after hiking it to 24% last year to halt a currency crisis.