Turkish lira strengthens past 7 per dollar to six-month high

Turkey’s lira strengthened through 7 per dollar to its highest level since early August, benefitting from a surge in investor interest in emerging markets.

The lira was trading up 0.9 percent at 6.96 per dollar at 1:03 p.m. local time in Istanbul, extending gains since a record low in November to 19 percent.

The Turkish lira is leading a global rally in emerging market currencies after the central bank more than doubled its benchmark rate to 17 percent since September and pledged to keep monetary policy tight through this year. The lira had hit its all-time low of 8.58 per dollar on Nov. 6.

“It shows the impact of half-decent monetary policy,” said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London. There has been a “remarkable turnaround” in the lira since central bank governor Naci Ağbal took office on Nov. 7, he said.

The dollar posted its biggest drop last week, pushing the MSCI index of emerging market currencies to its highest level on record on Friday. The gains underscore investor optimism about a vaccination-led global economic recovery.

Under Ağbal, Turkey’s central bank has vowed to prioritise the battle against inflation and slow annual price increases to a medium-term target of 5 percent. Inflation edged up to 15 percent in January.

Murat Uysal, Ağbal’s predecessor, had kept interest rates at below inflation to help the government engineer a borrowing boom. But the policy led to a jump in demand for imports, surging inflation, a widening current account deficit and an exodus of local money from the lira to foreign exchange.

The central bank is expected to keep its benchmark interest rate on hold at a meeting of its Monetary Policy Committee on Thursday, according to a poll of 21 economists conducted by the state-run Anadolu news agency. Fifteen economists expected no change, while six predicted a hike of between 0.75 percentage points and 1 percentage point, Anadolu said.

HSBC said last week that the lira could rally to 6.5 per dollar in the short term. A February survey of finance industry professionals and industrialists by the central bank saw the lira trading at 7.79 per dollar by the end of the year. The prediction stood at 7.98 per dollar in January.