Political tensions, inflation fears hammer Turkish lira

THE TURKISH lira hit a record low yesterday and bond yields rose to fresh peaks on political strains and worries about the central bank’s ability to curb inflation.

The lira hit 3.98 to the dollar, coming under renewed pressure ahead of the US trial of Turkish gold-trader Reza Zarrab, who is accused of violating US sanctions on Iran. The Turkish government has described the case as a “clear plot against Turkey” that is without legal basis.

Foreign investors, which Turkey needs to finance its large budget and current account deficits, are also concerned about political pressure on the central bank, which is struggling to tame high inflation.

The falling lira has fuelled expectations of further central bank action as initial attempts to shore up the currency appeared to do little to stem the losses.

The yield on the benchmark 10-year local sovereign bond leapt to a record high of 13.52% and the average yield spread of Turkish sovereign dollar-denominated bonds over US Treasuries on the JPMorgan EMBI Global Diversified index held at their widest level since March. But some Turkish banks’ dollar-denominated bonds continued to trade near multi-month lows.

Turkish consumer confidence fell to 65.2 points in November, the lowest level this year, reflecting a pessimistic outlook.

The poor performance of Turkish assets contrasted with a rally elsewhere across emerging markets.

Asian currencies were almost uniformly stronger, with Malaysia’s ringgit up 0.7% to a more than one-year high after central bank comments that the currency was “far from reflecting its fair value”.

But Mexico’s peso weakened 0.3% after the US, Mexico and Canada failed to resolve any major differences in a fifth round of negotiations over the North American Free Trade Agreement.

MSCI’s benchmark emerging stocks index rose 0.5% to fresh six-year highs, led by Asian technology shares. – Reuters