May 14, 2018 / 8:55 AM / a year ago

Turkey's lira eases, current account deficit wider than expected

ISTANBUL (Reuters) - The Turkish lira eased against the dollar on Monday, hit again by investor concern about the central bank’s ability to rein in double-digit inflation and after data showed a wider-than-expected current account deficit in March.

FILE PHOTO: Turkish 50 Lira banknotes are seen in this October 10, 2017 picture illustration. REUTERS/Murad Sezer/Illustration

The lira has weakened 12 percent this year, pressured by investor doubts about whether the central bank will meet market expectations for tighter monetary policy as well as by political uncertainty ahead of snap elections on June 24.

The central bank last month raised its late liquidity window rate TRLLW=ECI, which it uses to set policy, by 75 basis points. It is scheduled to hold its next policy-setting meeting on June 7.

“Market expectations of an interest rate hike on June 7, or maybe before that, are strengthening. But politicians’ statements at this time are putting the exchange rate under more pressure,” said one banker.

“Presidential statements say the necessary steps will be taken in monetary policy and this stress is important,” the banker added.

At 0806 GMT, the lira TRYTOM=D3 stood at 4.3270 against the U.S. currency, weaker than a close of 4.3088 on Friday but off an early morning low of 4.3502. Last week it touched a record low of 4.3780.

The lira slid again on Friday after Erdogan called for lower interest rates, calling them the “mother and father of all evil”.

The current account deficit is one of the main worries for investors, although the market showed little reaction to it widening to $4.812 billion in March from $4.5 billion a month earlier. It exceeded a poll forecast of $4.125 billion.

The other major economic concern is inflation, which stood at 10.85 percent year-on-year in April, far above the bank’s target of 5 percent.

Erdogan spoke again about interest rates at the weekend before departing on a visit to Britain, when asked about the outlook for rates.

“After June 24, the shape and the level of them will develop in a very different way,” he said.

The yield on the benchmark 10-year bond TR10YT=RR was at 13.86 percent, up from 13.59 percent on Friday.

The main BIST 100 share index .XU100 rose 0.11 percent to 101,975 points.

Reporting by Nevzat Devranoglu; Editing by Daren Butler, David Dolan and Janet Lawrence

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