Tamer inflation boosts Turkish lira

ISTANBUL (Reuters) – The Turkish lira gained more than 2 percent yesterday after inflation came in tamer than expected as short-term investors bought lira to benefit from high rates in what some economists called a rebound. The lira traded at 1.542 to the dollar on the interbank market at closing, 2.1 percent stronger on the day and back to levels last seen early last month. Inflation, which spooked investors into a sharp sell-off at the start of May and heightened their concerns in early June, rose 0.34 percent in June, below a Reuters poll forecast of 1.5 percent, data issued after the market close on Monday showed. That made for a year-on-year rate of 10.12 percent, which compares with a benchmark borrowing rate of 17.25 percent and a 22.25 percent lending rate. «Short-term interest rates are providing a good opportunity to short some US dollars against Turkish lira,» one banker said. «It’s just a short-term bet on Turkish lira because of the high level of short-term interest rates,» he said. However, Danske Bank said yesterday the rebound was set to last a few months and revised up its three-month lira forecast to 1.42 against the dollar. But in 12 months’ time the currency was seen back at 1.49 to the dollar as longer-term risks remained. «The Turkish markets have sold off dramatically since the beginning of May, but we believe they have now staged a rebound that should continue in the coming months,» Danske Bank’s Lars Christensen said. The central bank continued to drain lira liquidity from the market, buying 600 million lira yesterday, continuing a policy to bolster the Turkish currency, which lost as much as 25 percent of its value between end-April and late June. For the first time since the bank started the auctions last week, the rate offered on two-week dated deposits was lower than the interest on one-week deposits, reflecting expectations of lower borrowing costs. However, demand was strong, with total bids worth a total 2.69 billion lira for the two tenders. Bonds also firmed, with the yield on the benchmark April 9, 2008 trading at 19.47 percent from 20.10 percent on Monday. The Treasury auctioned two bonds on Tuesday, selling 2.132 billion lira ($1.380) of a 728-day floating rate note and 776 million lira of a 364-day discount bond. The main Istanbul stock index also received a boost from softer inflation data, rising 2.89 percent to 36,481.23 points. «Yesterday’s inflation data were interpreted positively and the foreign exchange rates fell in step. It brought some purchasing to the bourse,» said research director at Acar Securities Zeynel Abidin Balci.