Recasts with lira movement, details and background
ISTANBUL, Nov 13 (Reuters) – Turkey’s lira firmed on Friday to its strongest level in seven weeks, notching a weekly gain of 12%, after President Tayyip Erdogan’s pledge to adopt a new economic model raised expectations of a sharp rate hike from the central bank.
The lira TRYTOM=D3 stood at 7.6300 against the dollar at 0632 GMT, firming around 0.4% from Thursday’s close of 7.6625. Earlier in the session, the unit strengthened to 7.6150, its highest level since Sept. 25.
The currency’s rally this week, after touching a record low of 8.58 last Friday, was sparked by expectations of a more orthodox economic policy after the central bank governor and the finance minister left office over the weekend.
Providing further impetus for the lira rally, Erdogan shifted to a more market-friendly tone on Wednesday and promised economic growth based on stability and international investment — a turnaround from blaming foreigners and high rates for Turkey’s woes.
The central bank is now expected to raise its policy rate next week to 15% from 10.25%, a Reuters poll showed on Thursday, as analysts took Erdogan’s speech to imply that he would condone such an increase.
The central bank raised its policy rate by 200 points in September but held steady last month, which led to a sell-off in the lira. The bank’s use of backdoor policies, including funding the market above the policy rate, has brought the weighted average cost of funding CBTWACF= to 14.46% as of Thursday.
The lira also firmed sharply against the euro EURTRYD3=R this week, to as much as 8.9823 on Friday.
(Reporting by Ali Kucukgocmen; Editing by Daren Butler and Sherry Jacob-Phillips)
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