Turkish lira rises to four-month high ahead of religious holiday

Turkey’s lira climbed to the highest level since early April as Turks bought the currency ahead of a religious holiday.

The lira gained 0.4 percent to 5.49 per dollar at 3:06 p.m. in Istanbul, rising for a second day.

Turkey’s currency is benefiting from a slowdown in inflation and monetary easing by central banks around the world. The lira had hit a record low of 7.22 per dollar last August due to a political crisis with the United States and amid concerns among investors about an overheating economy. The currency crisis sparked a dollar buying spree among Turks worried about an erosion of their savings.

The lira climbed by 0.4 percent to 6.15 per euro on Wednesday.

The currency is also profiting from a lull in political tensions with the United States over the government’s purchase of S-400 air defence missiles from Russia. Threats of economic sanctions by some U.S. officials and politicians have yet to materialise.  

The lira has now pared losses against the dollar this year to 3.6 percent. It is the only major emerging market currency to have gained over the past month.

Turkey’s consumer price inflation has slowed to 16.7 percent in July from 25.2 percent last October, a 15-year high. The easing in inflation has prompted the central bank to cut interest rates for the first time since September. It reduced the benchmark rate of 24 percent to 19.75 percent last month.

As of Aug. 1, dollar deposits in Turkey fell to $214.9 billion, data provided by the banking regulator shows. That was a $1.7 billion decline on a week earlier. Most of the selling was from corporate accounts.

But with the rate cut, it is not clear whether consumers and businesses will continue to buy liras. Bank deposits had brought annual returns of 20 percent prior to the central bank’s decision. With an expected decline in returns from deposits, it is not clear whether the new trend of buying liras for foreign currency will persist.

Some Turkish citizens may be selling the dollars they have bought to fund spending during a national religious holiday next week, when people traditionally go on vacation or visit their families.