Turkish lira down; headscarf debate causing concern
ISTANBUL (Reuters) – Turkey’s lira weakened slightly yesterday, hit by risk aversion globally and by concerns at home that a new constitution will stir controversy by relaxing curbs on the Muslim headscarf. The lira closed at 1.2655 to the dollar on the interbank market, versus last Friday’s 1.2635, having started the day below 1.26. The high-yielding currency is still 12 percent higher than at the end of last year despite a global sell-off. «Domestically, the tension that could be created if the new constitution allows headscarves is dominating and a reason for the rising dollar,» said a foreign exchange dealer. The re-elected Justice and Development Party (AKP), which has Islamist roots, is working on a new constitution which is seen as the next source of tension with the powerful secularist army. On the weekend, media reported that a commission drafting the new charter could not decide on whether to allow headscarves in universities or not – a key issue for secularists and AKP supporters alike – and would leave the decision to Prime Minister Recep Tayyip Erdogan. The draft is due to be discussed by the party leadership this week and then presented to the public. Weighing on sentiment globally were troubles at British mortgage lender Northern Rock and comments from former US Federal Reserve Chairman Alan Greenspan. Before a Fed rates meeting today, Greenspan was quoted as saying the chances of a recession were now slightly more than a third and that interest rates might have to go into double digits to keep inflation at desired levels. «Externally there’s also a negative mood. Britain’s Northern Rock and Greenspan’s comments have created risk aversion again with Dow Jones futures negative and the yen rising,» the trader said. The yen is crucial for Turkish markets as investors borrow the low-yielding Japanese currency to invest in the high-yielding lira, in so-called carry trades. Dealers said US interest rate decision would tip the direction in Turkish markets. «From now on, all eyes will be fixed on the Fed. It will really shake the market if it does not cut interest rates… If there is a 0.5 percentage point rate cut, it will trigger a big rally,» another foreign exchange dealer said. Turkey’s main stock index fell 0.17 percent to 50,536.54 points. But the yield on the May 6, 2009, benchmark bond fell to 17.55 percent from 17.61 percent as bond traders factored in more interest rate cuts from the central bank after a surprise 25-basis point cut last week. Traders said bond market volumes were low. Markets were unchanged by data yesterday which showed unemployment was flat on the year at 8.8 percent in the May to July period, yet youth unemployment rose to 18.4 percent from 16.7 percent a year earlier.
