(Updates prices, adds analyst comment)ISTANBUL, Dec 4 (Reuters) - Turkey's lira weakened somethree percent on Tuesday amid increased expectations of an earlyloosening in monetary policyafter data showed the country'sannual inflation rate eased in November from a 15-year peak.The lira fell sharply earlier this year due to investors'concerns over the central bank's ability to respond adequately
to high inflation as it faces pressure from President TayyipErdogan to lower borrowing costs.
Those concerns were partially assuaged by a massive 6.25percentage point rate hike in September that helped the lira toreverse some losses. The currency had fallen by as much as 47percent against the dollar in the year to August.Efforts to mend strained diplomatic relations with theUnited States have also supported the lira.Official data showed on Monday that annual inflation easedin November to 21.62 percent from a 15-year peak, on the back oftax cuts, discounted products and a stronger lira. The fall in inflation has triggered speculation that thecentral bank will cut rates earlier than anticipated, said PiotrMatys, an emerging market forex strategist at Rabobank."If they indicate that they may start lowering interestrates in Q1, the lira may extend its losses," he said, whenasked about his expectations for the central bank's rate-settingmeeting next week. He added that the lira could stabilise if thecentral bank reassures markets that it will keep policy tight.The monetary policy committee will announce its ratedecision on Dec. 13 at 1100 GMT.The lira weakened to 5.4140 against the dollarby 1513 GMT from Monday's close of 5.25. It reached 5.46 earlierin the day, its lowest point in around two and a half weeks.
OIL PRICESThe rally in oil prices also impacted the lira, as investorsanticipate production cuts by OPEC and a reduction in Canadiansupply. Higher costs for Turkey's energy imports would reviveinflationary pressures. The currency crisis has also raised worries about a build-upof bad loans in the banking sector and its impact on the realeconomy.Ratings agency S&P Global said on Monday that it expects theamount of bad loans on Turkish banks' books to nearly doubleover the next 12-18 months to 6 percent from 3.5 percent inSeptember. It also said it expected their total credit losses to riseto as much as 2.5 percent from the recent average of 1.4percent.Turkey's economy is expected to go into recession, shrinking1.4 percent in the fourth quarter of 2018 and another 2.1percent over the following three months, a Reuters poll showedin October. (Reporting by Daren Butler and Ali KucukgocmenEditing by David Dolan and Gareth Jones)
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