By Yeliz Candemir
ISTANBUL--The Turkish lira has slumped toward a record low
against the dollar on expectations that the central bank may cut
interest rates as soon as next week.
The lira dropped around 0.8% Thursday, as the greenback rose as
high as 2.4037 lira, close to its previous record high of 2.4174 on
Dec. 16. The Turkish currency also came under pressure against the
euro, weakening 0.6% to 2.71 lira.
The yield on two-year benchmark government bonds rose to 6.75%
from 6.69% at Wednesday's close. Bond yields rise as prices fall.
Turkey's main BIST-100 stock index was down 0.6%.
"There is definitely an expectation that the central bank will
cut rates. That has been driving the move," said Phyllis Papadavid,
senior global currency strategist at BNP Paribas in London.
"It is important to remember that many emerging market economies
are actually benefiting from the lower price of oil, especially
importers like Turkey. In the longer term, this will give the
economy and the currency some support and will help it find a
floor, but in the shorter term it is fair to expect more pressure
on the lira ahead of the central bank rate decision."
Turkish Central Bank Governor Erdem Basci said on Tuesday he may
convene an extraordinary meeting to cut interest rates next week
amid intensified government pressure to boost sluggish economic
growth.
If the inflation rate slows by more than one percentage point in
January--to about 7%--policy makers could hold an emergency meeting
on Feb. 4 to reduce interest rates, he said. Inflation data for
January are scheduled for release Feb. 3.
The central bank is scheduled to have its regular monetary
policy committee meeting on Feb. 24.
Mr. Basci's warning of a possible imminent rate cut comes just a
week after the central bank lowered its one-week benchmark interest
rate by 50 basis points for the first time in six months, while
holding other rates steady. That policy easing was criticized by
the government and President Recep Tayyip Erdogan as "insufficient"
to attract investment to the country and boost economic growth.
"We expect an inter-meeting rate cut to be made, with 100 basis
points across the corridor as base-case, and risk of a larger cut,"
said Simon Quijano-Evans and Tatha Ghose, analysts at Commerzbank.
"Although the government has effectively 'locked-in' the Central
Bank of Turkey's commitment to ease around Feb. 4, we do think that
the CBT could still call off the inter-meeting rate cut, for
example under sudden forex volatility."
Equity markets across Europe were broadly lower Thursday,
reflecting an increase in risk-aversion from investors. The Stoxx
Europe 600 was 0.7% lower in early trade. Other emerging market
currencies, like the polish zloty and the South African rand, were
also trading lower on the day.
The U.S. Federal Reserve on Wednesday confirmed that it would be
"patient" so far as raising interest rates was concerned, without
indicating whether or not it would postpone such a move.
Sertan Kargin, chief economist at Eczacibasi Securities, said
Turkey's central bank will be mindful of an eventual increase in
U.S. interest rates and the impact this may have on emerging market
currencies.
"The Central Bank Republic of Turkey.... is required to adopt a
'positive real policy rate' to anchor expectations as the stark
contrast between the Fed and ECB/BOJ bloc is likely to put emerging
market currencies on a dangerous fault-line," he said.
Josie Cox contributed to this article.
Write to Yeliz Candemir at yeliz.candemir@wsj.com