Turkish lira, bonds down on high energy prices

The Turkish lira was weaker and bond yields were up on Wednesday as high oil prices continued to weigh on the energy-dependent economy, pushing investors to reduce their Turkish assets. Lira traded at 1.7958 versus the dollar, weaker than 1.7937 late on Tuesday. But it was a touch stronger than on Monday’s intra-day low of 1.80, its weakest since Jan.26, after data showed Turkey’s current account deficit was bigger than expected in January. “The lira performed relatively badly at the beginning of the week due to the high current account deficit. Local companies buying dollars also added to the lira’s weakness,” said Fatih Keresteci, strategist at HSBC. Turkish companies buy dollars to pay their import bills. The country’s huge current account deficit, estimated at around 10 per cent of its gross domestic product in 2011, is a key source of concern for investors. Rising energy prices mean a higher energy bill and external gap for Turkey, which is dependent on energy imports to run its economy. “The downward trend in the euro-dollar exchange rate will inevitably create upward pressure on the lira versus the dollar. But we expect the lira will not depreciate versus the (euro-dollar) basket,” Keresteci added. Against a euro-dollar basket, the lira firmed to 2.0678, from 2.0723 on Tuesday. Traders have said that if the lira weakens beyond 2.10 versus the euro-dollar basket, the central bank would probably take steps to support the currency, such as reducing significantly the amount of lira provided through repo auctions. The lira has weakened by around 2.5 per cent against the dollar since the central bank cut its overnight lending rate on Feb.21 to support the slowing economy. In response, the central bank on Friday decreased the total weekly stock funding amount to 25 billion lira from 29 billion lira a week earlier but maintained the monthly stock funding at 22 billion lira. Turkey’s two-year March 5, 2014 benchmark bond yield stood at 9.39 per cent, almost 10 basis points higher than the previous close, after the Turkish Treasury borrowed less than expected in a debt auction.