RPT-Turkey Deputy PM to Davos: lira drop is 're-pricing' due to politics, Fed taper

Fri Jan 24, 2014 1:46pm EST

DAVOS, Switzerland Jan 24 (Reuters) - Turkey's Deputy Prime Minister Ali Babacan said the lira's tumble on Friday was a "re-pricing process" due to recent political turmoil as well as the U.S. Federal Reserve's plan to gradually withdraw stimulus.

"What's happening in Turkey mostly is a re-pricing process. Not only just because of the Fed's tapering but also the recent political events have triggered some market volatility," he told a panel at the World Economic Forum in Davos.

Turkey's lira tumbled to new lows on Friday and investors doubted its central bank's ability to stem the rout as Prime Minister Tayyip Erdogan seeks to defuse a corruption scandal and stem a challenge to his power.

The lira weakened beyond 2.33 to the dollar, meaning Turks now need more than twice as many lira to buy dollars as they did at the currency's peak six years ago, a costly decline in a nation heavily dependent on imports.

But Babacan said the central bank was taking the necessary steps to deal with the situation, and said Turkey was protected against the swings in the market by its sound finances.

"The balance sheet of the government, the banks and households are quite well protected against market volatility."

He forecast economic growth of around 4 percent in 2014 and said he expected the country's large current account deficit to fall.