Lira, rand lead emerging market currencies lower

The Turkish lira and South African rand led emerging market currencies lower on Tuesday on concern about the two countries respective economies.

The lira dropped 0.7 percent to 4.6223 per dollar in Istanbul. The rand fell 1 percent to 12.69. The Hungarian forint was little changed at 272.5 while the Russian ruble fell 0.2 percent to 62.16 against the U.S. currency.

Turkey’s central bank will decide whether or not to increase interest rates on Thursday after consumer price inflation climbed to 12.2 percent in May from 10.9 percent in April. The producer price inflation rate surged to more than 20 percent. The rand weakened ahead of economic growth numbers due later on Tuesday.

Emerging market assets had rallied on Monday after a coalition deal was struck in Italy and U.S. bond yields eased. The Federal Reserve is due to meet on interest rates next week. The lira, rand and Argentinian peso have come under pressure over the past few weeks as investors switched their capital from emerging market assets into U.S. stocks and bonds ahead of anticipated U.S. rate increases.

The Turkish central bank, also faced with a widening current account deficit, may not increase interest rates at its regular monthly meeting on June 7 because of a recent rally in the lira spurred by a 300 basis-point rate hike last month to 16.5 percent, Bloomberg reported on Tuesday. But economists warn that the central bank’s failure to raise rates again may rekindle a sell-off in the lira, which slumped to a record low of 4.92 per dollar two weeks ago.

Six of 11 economists expect no rate hike by Turkey's central bank, according to a Bloomberg survey.

South Africa will publish first-quarter GDP data on Tuesday and manufacturing numbers on Thursday. Recent disappointing economic data has curbed a rally in its currency.