* Current account deficit, politics weigh on lira
* Central bank plays down likely impact of Fed tapering
(Adds central bank comments, latest on graft probe, closing
By Dasha Afanasieva
ISTANBUL, Jan 14 Turkey's lira weakened on
Tuesday after data showed the current account deficit had
widened in November while concerns about the impact of a
wide-ranging corruption scandal continued to weigh on sentiment.
Prime Minister Tayyip Erdogan described a corruption
investigation, which has resulted in three ministerial
resignations, as a "black stain on Turkey's democratic history"
and a worse betrayal than any of the military coups of past
The Turkish lira has weakened more than 7 percent since
mid-December, when in a series of morning raids dozens of people
including businessmen close to the government and the sons of
ministers were arrested. The raids coincided with raised
expectations for a scaling back of the U.S. stimulus programme.
Turkey's current account deficit widened to $3.94 billion in
November from $2.89 billion a month earlier, data showed,
narrower than had been feared but not enough of an improvement
to cheer the market.
The lira had weakened to 2.1830 against the
dollar by 1606 GMT from 2.1765 late on Monday.
TURKEY'S "ACHILLES HEEL"
"I guess this just affirms that the pace of improvement is
just not moving fast enough to quickly eradicate concerns over
Turkey's key Achilles heel, the current account deficit," said
Timothy Ash, head of emerging markets research at Standard Bank.
"The lira looks set to go weaker still until the central
bank opts to tighten monetary policy in a more meaningful way."
Turkey depends on cheap capital inflows to finance the
current account deficit, running at around 7 percent of GDP,
leaving it particularly exposed to any slowdown in inflows
triggered by the scaling back of the U.S. Fed's bond buying.
The U.S. Federal Reserve has said it will cut its $85
billion-a-month bond-buying programme by $10 billion in January,
but Turkey's central bank forecast only a slight impact on
markets, saying it believed the measure was already largely
"The Fed tapering already had its impact on currencies, on
flows, so the remaining impact is quite low," central bank
deputy chairman Turulay Kenc said on Tuesday.
"The impact when the Fed actually starts tapering will be
much lower than what we observed in May 2013 or recently."
Despite the lira's decline, the central bank has so far
refused to hike rates, instead opting to tighten monetary policy
through cancelling repo auctions and trying to support the
currency through dollar sales.
The main Istanbul index closed almost flat on
Tuesday, up 0.02 percent at 68,072.51 points, compared with the
main global emerging market index which was a quarter
of a percentage point lower.
The yield on Turkey's 10-year benchmark bond
inched up to 10.05 percent from 10.04 percent late on Monday.
(Editing by Nick Tattersall/Gareth Jones)