Turkish Lira Climbs to Highest Since February as Rates Raised

By Emma O'Brien

July 18 (Bloomberg) -- Turkey's lira rose to the highest level in 4 1/2 months against the dollar after the central bank raised its key interest rate for the third time in as many months, boosting the appeal of the country's higher-yielding assets.

The Turkish currency climbed for the third day, its longest run of increases in a month, after borrowing costs were lifted yesterday by 50 basis points to 16.75 percent, a nine-month high and the most among major developing economies. Policy makers have raised the rate by 1.50 percentage points since May as surging oil and food prices forced them to revise inflation targets higher.

``The central bank is trying to regain its credibility,'' said Jon Harrison, an emerging-markets currency strategist at Dresdner Kleinwort in London. ``The high interest rates obviously make the lira appealing among the regularly traded currencies.''

The lira rose 0.3 percent to 1.1995 per dollar as of 9:56 a.m. in Istanbul, from 1.2032 yesterday. It earlier advanced to the highest since Feb. 29. The currency is up 2 percent this week, which would be the most since the week ended June 20.

Rising rates can make currencies a target for so-called carry trades, where cheaply borrowed funds are invested in nations where the returns on assets such as bonds and bills are higher.

The half-point rate increase was predicted by 11 of 21 economists surveyed by Bloomberg.

To contact the reporter on this story: Emma O'Brien in Moscow at eobrien6@bloomberg.net