Turkish lira weakens as cbank says inflationary pressures will persist

ISTANBUL: The Turkish lira weakened on Tuesday, after data showed that inflation climbed to its highest level in 15 years in August, and the central bank said upward price pressures were expected to continue into September.

The recent decline in the lira, which has lost around 43 percent of its value against the dollar this year, has placed further inflationary pressures on Turkey's economy, driving food and petrol prices higher.

Consumer price inflation jumped 17.9 percent year-on-year in August, its highest level since late 2003, according to data released on Monday.

The central bank said on Tuesday basic goods and energy prices were the main driver of inflation, and the rise in energy prices was expected to continue into September.

The lira stood at 6.6700 against the dollar at 0850 GMT, weakening from Monday's close of 6.6175.

Investors say they have lost confidence in the central bank's ability to rein in double-digit inflation, given what they see as pressure from President Tayyip Erdogan - a self-described "enemy" of interest rates - to lower borrowing costs.

Deutsche Bank said in a note that Turkey's inflation was expected to continue at high levels, with possible further increases in energy prices.

"The outlook for Turkish inflation doesn't look like getting positive anytime soon with our economists noting that a new shock is scheduled to arrive in September in the form of a 15 percent and 9 percent rise in electricity and gas prices respectively,"  the bank said.

State pipeline operator Botas and Turkey's energy regulator have hiked gas and electricity prices by 9 percent for residential use and 14 percent for industrial use twice this year.

RATE HIKE EXPECTATIONS

The newly-appointed Treasury and Finance Minister Berat Albayrak, who is Erdogan's son-in-law, held meetings with investors abroad to help restore confidence in the economy.

During meetings in London on Monday, an investor based there with knowledge of the discussions said Albayrak had said the "right things" but that the market wanted to see action.

"He did not say anything unorthodox on monetary policy or economic policy, but really they have to deliver now - the trust of the market has been destroyed, they need to act," the investor said.

In a statement on Monday's inflation figures, Turkey's central bank vowed to take actions to support price stability in view of recent developments in inflation - boosting expectations for an interest rate hike.

The bank's monetary policy committee will meet on Sept. 13.

For investors, the main question has been whether the central bank will be able to hike rates far enough to tame inflation. It left rates on hold at its last meeting in July, confounding expectations and sending the lira sharply weaker.

It last raised rates in June, when it lifted its benchmark one-week repo rate by 1.25 percentage points, to 17.75 percent.