ISTANBUL: Turkey's lira gained on Thursday after the U.S. Federal Reserve said it would be patient in raising rates, as Prime Minister Ahmet Davutoglu set out to rebalance the economy away from consumption-led growth.
Fed Chair Janet Yellen told a news conference "patient" meant the policy-setting Federal Open Market Committee was unlikely to hike rates for "at least a couple of meetings," meaning April of next year at the earliest.
Turkey is especially vulnerable to a U.S. rate hike because it would make Turkey's current account deficit more expensive to finance. Yield-seeking funds would tend to flow out of risky emerging markets.
The lira firmed to 2.3259 against the dollar at 1204 GMT, rising from 2.3690 on Wednesday after assurance from Turkey's central bank governor, Erdem Basci on Wednesday that the bank would keep its monetary policy tight until there was a clear improvement in the inflation outlook..
It had touched 2.4140 on Tuesday, its weakest ever, in an emerging-market slide spurred by a collapsing Russian rouble. Domestic political tensions amplified the effect on the lira.
Turkey's main stock index was up almost 1.92 percent at 82,369.73 points, outperforming the emerging market index which was up 1.6 percent.
At a news conference on Thursday, Prime Minister Ahmet Davutoglu announced a package of programmes aimed at increasing domestic savings to 19 percent of GDP in 2019 from 13.4 percent in 2013, in turn boosting investment in industry.
The government will employ measures to discourage luxury consumption, Economy Minister Nihat Zeybekci told the same press conference. The measures will be mainly in the form of import tax hikes, especially regarding consumer electronics, Zeybekci added.
Davutoglu said that bank loans for production and production-oriented investments will be exempt from the Banking and Insurance Transaction Tax (BSMV). Deputy PM Ali Babacan said that the BSMV exemption might be accompanied by other measures to support lending to the manufacturing sector.
Analysts said details of timing were needed for the announcement to boost markets.
"If these reforms are carried out, it would mean a significant transformation in the Turkish economy, and would add important value to all Turkish assets in the long term," Garanti Invest economist Gizem Oztok Altinsac said.