Turkish lira hits six-year high after US Fed cut
ISTANBUL (Reuters) – Turkey’s lira hit its highest level against the dollar since July 2001 and shares soared 6 percent yesterday after the US Federal Reserve cut interest rates by a hefty 50 basis points. Lower interest rates in the United States make high-risk, high-yielding emerging markets such as Turkey comparatively more attractive for investors and a global rally on the back of the decision pulled Turkish assets higher. The lira closed at 1.2620 on the interbank market to the dollar on Tuesday, ahead of the Fed decision. A dealer said that the lira soared, breaking a 1.2345 resistance level after the Fed’s decision. «In the short term, the 50-base point rate cut really set the markets on fire… but disappointments will continue. We will be watching how much credit problems have affected investment companies as well as US inflation levels,» said Cumhur Ornek, Denizbank proprietary dealer. Dealers noted that inflationary concerns persist in the United States and elsewhere and said Turkish markets would continue to take their cue from overseas markets. Istanbul’s main share index traded 6.5 percent higher at 53,781.60 points, with blue chips showing even stronger gains. Shares in Turkcell hit a record high of 10.20 lira, later trimming gains to stand 7 percent higher at 10.0 lira. Investors shrugged off news the telecoms watchdog had canceled a 3G mobile phone license awarded to the firm and focused instead on broader market conditions. «Turkcell, like the banks, is high beta so it reacts more than the rest of the market,» said Bulent Yurdagul, analyst at HSBC. «It also benefits from a strong lira as its capex is in dollars and its revenues mostly in lira. We expect Turkcell to post strong results in Q3 following an outstanding Q2 performance,» he added. Turkey’s benchmark bond May 6, 2009 yield dropped to its lowest level since June 2006 at 16.92 percent, compared to 17.45 on Tuesday. «Buying in the bond market has accelerated with the Fed rate cut. Foreigners are coming to buy but I don’t think the yields will fall further. Profit-taking may follow,» said one bond dealer. Last week’s 25-basis point cut in Turkish rates has also encouraged buying in the bond market. Despite current rises, market players fear the rally may be short-lived as the sharp Fed rate cut shows problems stemming from the US mortgage market are serious, which may curb risk appetite in the future. «Even though a 50-point rate cut was within expectations, I think the market reaction has been excessive. There are still external and domestic risks… The constitutional debates as well as terrorism (in the southeast) will continue,» said Ornek. A new constitutional draft is expected to ease a ban on the wearing of Islamic headscarves at public universities, but this could reignite political tensions between the ruling Justice and Development Party, which has Islamist roots, and the secular establishment.
