East European Currencies: Turkish Lira Advances Against Dollar

By Yon Pulkrabek

July 31 (Bloomberg) -- Turkey's lira extending its biggest monthly gain against the dollar in almost a year after a court rejected a case to ban the ruling Justice and Development Party. Romania's leu advanced 3.8 percent this month

The lira rose for a fourth day as the Constitutional Court fell one vote short yesterday of seven needed to uphold the ban. Under Prime Minister Recep Tayyip Erdogan, Turkey has posted 23 consecutive quarters of economic expansion and attracted a record $40 billion in foreign direct investment in the past two years.

The court's decision is ``obviously good news from a market perspective,'' said Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. ``We will move in a significantly more positive direction in our forecast.''

The lira climbed as much as 2.4 percent to 1.1555 per dollar, its highest level since Jan. 15, and was at 1.1582 by 5:55 p.m. in Istanbul, from 1.1835 yesterday. The lira has gained 5.6 percent against the U.S. currency this month, the most since September 2007, making it the third-best performer among the 26 emerging-market currencies tracked by Bloomberg.

``For the lira, this opens room for a big initial appreciation step and a prolonged appreciation trend,'' analysts including Ulrich Leuchtmann and Antje Praefcke at Commerzbank AG, Germany's second-biggest bank, wrote in a client note.

The court ruled to lower state funding for the ruling party as a punishment for violating a constitutional ban on basing government policies on religious edicts.

Losing Streak

In other trading, the Romanian leu advanced 0.5 percent to 3.5154 per euro after the central bank unexpectedly increased interest rates by 25 basis points today. The currency has appreciated 3.8 percent this month.

The bank boosted its key rate to 10.25 percent, the highest in the European Union. Five of the 13 economists surveyed by Bloomberg predicted the decision.

The Czech koruna dropped for a third day, its longest losing streak in two months, declining 0.4 percent to 23.941 per euro, from 23.840 yesterday. The central bank may cut rates as early as Aug. 7, policy makers Pavel Rezabek and Eva Zamrazilova signaled yesterday, echoing comments by Governor Zdenek Tuma last week.

The koruna has declined 0.3 percent versus the euro this past month, its first monthly drop since April.

The Slovak koruna was little changed at 30.380 per euro, losing 0.5 percent this month. European Union finance ministers on July 8 gave final approval for the country to switch to the region's common currency in early 2009 at a rate of 30.126.

The Polish zloty slid 0.1 percent to 3.2105 per euro, taking its gain in July to 4.4 percent, and the Hungarian forint slipped 0.6 percent to 232.24, paring a monthly advance to 1.4 percent.

To contact the reporter on this story: Yon Pulkrabek at ypulkrabek@bloomberg.net