Turkish Lira Slips Most in Two Weeks After Inflation Accelerates

EghtesadOnline: Turkey’s lira fell after data showed inflation accelerated more than forecast in July, undermining confidence in the central bank’s resolve to control price gains that eat into returns on the nation’s assets. Stocks and bonds also dropped.

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03 August 2016

The currency weakened 0.7 percent to 3.0113 per dollar as of 6:17 p.m. in Istanbul, the second-steepest drop in emerging markets, while the nation’s 10-year bonds slid a third day and stocks posted the biggest decline in almost two weeks. Headline inflationaccelerated to 8.79 percent from a year earlier, surpassing a median expectation of 8.16 percent in a Bloomberg survey.

It’s the third straight month that Turkish inflation has accelerated, eroding returns on Turkish assets. Policy makers cut the upper end of their interest-rate corridor on July 19 for the fifth time this year, bringing total reductions to 200 basis points. A week later, the central bank predicted consumer-price growth would quicken in July, while leaving the year-end target unchanged, according to Bloomberg.

“We are witnessing some negative pressure on the lira following the very weak figures,” Roxana Hulea, an emerging-market strategist at Societe Generale SA in London, wrote in an e-mailed note. “After today, the markets will probably be increasingly less lenient with the central bank’s well-entrenched easing bias.”

Yields on 10-year bonds climbed 12 basis points to a one-week high of 9.87 percent and the Borsa Istanbul 100 Index slid 1.7 percent. The central bank cut the overnight-lending rate by a quarter point to 8.75 percent last month, scaling back the pace of easing after a failed coup four days earlier.

“The time is likely ripe now for the central bank to pause for breath, even though, I think they have a clear and proven dovish bias,” Timothy Ash, a strategist at Nomura International Plc in London, said in an e-mailed note.

The worse-than-expected data prompted JPMorgan Chase & Co. to raise its inflation target for the end of the year to 8.3 percent from 7.9 percent previously. Still, the central bank “could still try to see through the inflation data,” and continue with another 25 basis-point cut to the overnight lending rate this month, Yarkin Cebeci, an economist at the bank, wrote in an e-mailed note.

The slump in Turkish assets came amid a selloff in emerging markets as oil trading near $40 a barrel added to concern that global economic growth is faltering.