August 27, 2013 / 6:08 AM / 4 years ago

UPDATE 1-Turkish lira weakens beyond 2 per dollar on Washington's Syria comments

* Lira at record low

* Syria weighs

* C.bank governor to speak

By Seda Sezer

ISTANBUL, Aug 27 (Reuters) - The Turkish lira weakened beyond 2 to the dollar on Tuesday after the United States signalled possible military intervention in Syria and the market waited for central bank action to halt the currency’s fall.

U.S. Secretary of State John Kerry, in the most forceful reaction yet to last week’s suspected gas attack outside Damascus, said President Barack Obama “believes there must be accountability for those who would use the world’s most heinous weapons against the world’s most vulnerable people”.

The lira was at 2.0045 against the dollar by 0544 GMT after dropping as low as 2.0095 earlier and from 1.9918 late on Monday.

Turkish central bank governor Erdem Basci was expected to appear on television at 0730 GMT, and investors are looking for more guidance on how he will act to stop the lira’s decline.

Turkey’s central bank has been tightening monetary conditions to support the lira through a range of tools, but has left its main benchmark rate - the one-week repo rate - unchanged at 4.5 percent.

“The recent developments in Syria signal possible military intervention and this is negative for economies like Turkey,” said Fatih Keresteci, a strategist at HSBC Bank in Turkey.

“The Turkish central bank’s hyperactive monetary policy, which aims to reduce the selling pressure, creates a second wave of selling tendency because it creates uncertainties. The lira will remain under pressure unless the central bank switches to an orthodox policy and makes lira relatively attractive again.”

The central bank held a forex auction on Monday and sold $350 million, in line with additional monetary tightening steps announced last week. The bank also held its first one-week, fixed-rate repo auction in almost a week, with a volume of 1.5 billion lira ($755 million).

It also said it would launch a forex-selling auction on Tuesday with a minimum volume of $50 million.

Growing expectations that the U.S. Federal Reserve may soon start tapering its stimulus programme has hit appetite for emerging markets, with Turkey’s gaping current account deficit leaving it particularly vulnerable.

The country is dependent on foreign inflows to finance the gap, which is equivalent to around 7.1 percent of Turkey’s economic output.

Raising interest rates makes lira assets more attractive to foreign investors, but could also crimp growth, something Prime Minister Tayyip Erdogan’s government is eager to avoid before local polls next year and a general election in 2015.

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