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TRY slips over gov. call for lower interest rates

Turkey's Prime Minister Recep Tayyip Erdogan addresses members of his ruling party in parliament in Ankara, Turkey, Tuesday, May 27, 2014. (AP Photo/Burhan Ozbilici)

ISTANBUL: The Turkish lira fell more on Wednesday as investors braced themselves for further interest rate cuts after Prime Minister Tayyip Erdogan said the central bank's latest rate reduction was insufficient.

The lira slipped to 2.1094 against the dollar at 0726 GMT, compared with 2.0979 late on Tuesday.

Last week the central bank cut interest rates for the first time in more than a year, following a round of huge rate hikes in late January aimed at halting a dramatic slide in the lira amid an emerging market sell-off.

On Tuesday, Erdogan reiterated his calls for a bigger rate cut as the embattled leader looks to maintain economic growth in the run-up to presidential elections in August in which he is expected to run.

The comments boosted expectations of further loosening of policy, while adding to analysts' concerns about the independence of the central bank.

"We have always viewed appropriately high interest rates (c.10 percent) as the necessary and sufficient condition for Turkey's CAD (current account deficit) to remain reliably financed through coming years of progressively less easy monetary policy," a note from Commerzbank said.

"This defence worked, as expected, recently when the CBRT (Turkish central bank) hiked rates in an emergency meeting. But, this defence could be about to be dismantled," said the bank, which recommended cutting Turkey exposure in the coming week.

Turkey's finance and economy ministers added to the government pressure on the central bank on Wednesday, saying that inflation would peak this month and that interest rates were higher than they needed to be.

Turkey's 10-year benchmark bond yield rose to 9.33 percent from 9.23 percent at Tuesday's close.

The main Istanbul share index rose 0.14 percent to 77,640.33 points, underperforming the broad emerging markets index, which was up 0.42 percent.

 

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Summary

The Turkish lira fell more on Wednesday as investors braced themselves for further interest rate cuts after Prime Minister Tayyip Erdogan said the central bank's latest rate reduction was insufficient.

Last week the central bank cut interest rates for the first time in more than a year, following a round of huge rate hikes in late January aimed at halting a dramatic slide in the lira amid an emerging market sell-off.

Turkey's finance and economy ministers added to the government pressure on the central bank on Wednesday, saying that inflation would peak this month and that interest rates were higher than they needed to be.


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