Dollar Gains Value Against Lira, Interest Rates Follow

The lira and Turkish stocks sustained losses with interest rates following suit on Monday, along with other emerging markets and currencies, as a series of disappointing signs of a Chinese slowdown came in, adding to the pressure from an appreciating dollar.

The first rise in the exchange rate between the dollar and lira started on Friday after Dallas Federal Reserve Bank Chair Richard Fisher announced that he expected the Federal Reserve to start raising benchmark interest rates by spring of next year.

Domestic markets were cautious ahead of a critical meeting of the Turkish Central Bank's Monetary Policy Committee (PPK) on Thursday. Pressured by the government to lower key interest rates further, the PPK is expected to leave rates untouched in its next meeting in the face of strengthening signs of rising inflation. Still, some analysts think the Fed may beat the odds and make a reduction in the upper limit of its interest rate corridor.

Investors in Turkish markets are rumored to be carefully considering whether some adverse news, such as a downgrade in Turkey's credit rating, might come from international credit rating agencies, which will be assessing the Turkish economy shortly. Analysts have also drawn attention to the rising tensions in Iraq and Syria, with the prospect of a possible international intervention to fight the terrorist Islamic State of Iraq and Levant (ISIL), which are adding to the ambiguity surrounding Turkish markets.

The dollar's gains in global markets, and local concerns about the Turkish economy, have thrown the lira to the lowest level since March of this year, and the lira was traded as high as 2.2483 in the interbank market. The currency fell to 2.2393 in the early trading session but bounced rapidly back to these high levels.

Released last week, the Fed's minutes of its latest Open Market Committee meeting revealed that the US central bank is planning to keep its near-zero interest rates intact for a “considerable time,” but when it starts to increase them, borrowing costs will surge in a short time. Fisher, however, opined that the rate hike should start sooner than expected, while the rise should be incremental to take more time than planned to reach the target.

The lira lost value against the euro as well. The currency was being traded for TL 2.8660 in the morning session, but it hit as high as 2.8860 during the day.

The volumes of trade in T-bills and bonds were low, but the interest rates of benchmark bonds with two-year and 10-year maturities rose in parallel with the depreciation of the local currency. The 10-year bond's compound interest was 9.47 percent as of 4.50 p.m., marking a 0.07-point increase over the Friday closure figure. Compound interest on the two-year bond registered a 0.06-point increase to reach 9.24 percent.

(Cihan/Today's Zaman)