May 17, 2018 / 7:09 AM / 2 months ago

UPDATE 2-Turkish lira eases as investors hope for central bank action

(Recasts, adds analyst comment)

ISTANBUL, May 17 (Reuters) - Turkey’s lira weakened against the dollar on Thursday, weighed down by concerns about President Tayyip Erdogan’s influence over monetary policy and as investors waited to see whether the central bank would take action against the sell-off.

The bank said on Wednesday it was closely monitoring “unhealthy price formations” and would take necessary steps, considering the impact of these developments on the inflation outlook. It is scheduled to hold a policy-setting meeting on June 7.

The currency has fallen some 15 percent against the dollar this year, hit by deepening concern about Erdogan’s push for lower interest rates. The bank’s reluctance to drastically tighten policy has exacerbated worries that it is under political pressure.

“The central bank has to announce concrete measures very soon, or the respite for the Turkish currency and local assets will not last long,” Piotr Matys, an emerging markets forex strategist at Rabobank, said in a note to clients.

The lira traded at 4.4415 against the dollar at 1156 GMT, weakening from a close of 4.4160 on Wednesday. It touched a record low of 4.5010 on Wednesday before rebounding after the central bank’s statement.

Erdogan, a self-described “enemy of interest rates”, said earlier this week he planned to take greater control of the economy after presidential and parliamentary elections on June 24, exacerbating fears about central bank independence.

In a measure responding to lira weakness and rising crude oil prices, the government said it would lower special consumption tax to offset any fuel price rises driven by these factors.

Some analysts took a dim view of the tax move.

“This is bad - just sweeping challenges on inflation under the fiscal carpet without addressing the core problems underlying the weaker lira and high inflation - which is an overheating economy and the need for higher rates,” Bluebay Asset Management strategist Timothy Ash said.

The main share index fell 0.2 percent. State lender Halkbank was down 1.4 percent at 1250 GMT, having spiked upward in morning trade after a U.S. judge sentenced one of its executives to 32 months in jail over his part in a scheme to help Iran evade U.S. sanctions - a sentence significantly lighter than prosecutors had sought.

The yield on the benchmark 10-year bond was at 14.76 percent, unchanged from its level on Wednesday. (Reporting by Ebru Tuncay and Ezgi Erkoyun; Writing by Daren Butler; Editing by David Dolan)

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