ISTANBUL: The Turkish lira weakened yesterday after October inflation came in higher than expected, with investors betting the data would do little to spur the central bank into raising interest rates.
Consumer prices rose 1.8 percent month-on-month in October, above a forecast of 1.3 percent in a Reuters poll, driven higher by sharp rises in the cost of food and clothing.
The data reinforced the view that the central bank, which last week raised its inflation forecasts for this year and next, is comfortable with current price levels and does not see a need to defend the lira aggressively.
“All this I guess reflects the official acceptance of a weaker lira as the price for trying to rebalance the large current account deficit,” Timothy Ash, head of emerging markets research at Standard Bank, said in a note.
“In choosing between lower inflation and growth, the central bank has ultimately gone for growth over the past year or so,” he said, predicting little change in its monetary policy stance.
The lira weakened to 2.0185 against the dollar by 0935 GMT from 2.015 before the latest inflation data.
With no trades yet on Monday, the 10-year benchmark bond yield stood at 9.08 percent. The main Istanbul share index was up 0.26 percent at 76,710.54 points, outperforming the broader emerging markets index, which fell 0.28 percent.
With elections looming next year and the government bent on maintaining growth, Turkey’s central bank has been reluctant to raise rates, instead cancelling repo auctions and selling dollars at auction to tighten liquidity and support the lira.
Reuters
