(Bloomberg) -- The prospect of a global oil spike threatened to pull the rug out from under the lira. Not so. While it's unclear how long this price surge will last, the lira's resilience is a sign it's better positioned to withstand such shocks.
Traders, rushing to lock in the currency's juicy yield before rates fall further, are operating under the assumption that inflation will dip into the single digits though October. Should surging crude prices fan consumer price growth in Turkey -- a net energy importer -- the whole investment case risks being undermined.
But after testing the 5.74 handle several times since the session kicked off, the lira trimmed loses to trading around 0.5% lower. That compares with a 0.8% drop in the Indian rupee, the other big oil-dependent emerging market. The muted market reaction partly reflects the fact that it's still not clear how long a Saudi oil shortage will last. It also underscores the scale of the economic adjustment in Turkey that has left the currency far less exposed to exogenous shocks.
Last week, the annual current-account balance posted a surplus of $4.45 billion July, compared with a $54.6 billion deficit last year. What's more, even after crude oil's record intraday jump, the average oil price is smack in line with the central bank's assumption of $65/bbl for the year, so it will conceivably take a much bigger increase for the lira to really feel any heat.
To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net
To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net;Onur Ant at oant@bloomberg.net
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