Turkish lira weakens as current account gap widens

An advertisement poster with a picture of Turkish Prime Minister Tayyip Erdogan is pictured inside a metro train in Istanbul January 13, 2014. REUTERS/Murad Sezer

ISTANBUL: Turkey's lira weakened to near record lows on Tuesday after data showed the current account deficit had widened in November.

A corruption inquiry shaking Turkey's government, along with U.S. plans to scale back its massive stimulus programme, have weighed on the lira, knocking it down more than 7 percent since mid-December, when the graft scandal first emerged.

The deficit widened to $3.94 billion in November from $2.89 billion a month earlier, narrower than had been feared but not enough of an improvement to cheer the market.

The lira weakened to 2.1911 against the dollar by 0820 GMT from 2.1800 earlier in the morning.

"I guess this just affirms that the pace of improvement is just not moving fast enough to quickly eradicate concerns over Turkey's key Achilles heel, the current account deficit," said Timothy Ash, head of emerging markets research at Standard Bank.

"The lira looks set to go weaker still until the central bank opts to tighten monetary policy in a more meaningful way."

Turkey depends on cheap capital inflows to finance its current account deficit, running at around 7 percent of GDP, leaving it particularly exposed to any slowdown in inflows triggered by scaling back of the U.S. Fed's bond buying.

Despite the lira's decline, the central bank has so far refused to hike rates, instead opting to tighten monetary policy through cancelling repo auctions and trying to support the currency through dollar sales.

The main Istanbul index was down 1.29 percent at 67,186 points, compared with the main global emerging market index which rose 0.51 percent.

The yield on Turkey's 10-year benchmark bond fell to 10.01 percent from 10.04 percent late on Monday.





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