EMERGING MARKETS-Emerging mkts slip before US jobs; lira hit by PM comments

viernes 4 de abril de 2014 06:14 GYT

By Sujata Rao

LONDON, April 4 (Reuters) - The Turkish lira slumped half a percent on Friday, moving off recent three-month highs as comments from the prime minister renewed fears of political interference, leading a general emerging market retreat before U.S. jobs data.

Investors were waiting for the March U.S. non-farm payrolls later in the day to see if the world's biggest economy is finally regaining momentum after an extreme winter. A robust jobs report could prompt the Federal Reserve to step up the pace of stimulus withdrawal - broadly seen as a negative for emerging markets.

The Turkish lira was most in focus after Prime Minister Tayyip Erdogan said the central bank should cut interest rates, raising fears the government would exert pressure on the bank to keep rates artificially low before August elections.

Inflation data on Thursday showed the central bank has little room for manoeuvre and Governor Erdem Basci said policy would stay tight in order to fight price growth. The bank implemented a massive rate rise at the end of January, resisting pressure from the government.

"This is certainly not what the market wants to hear from Erdogan in terms of trying to intervene in how the central bank behaves. The central bank has done well to regain market trust and the best strategy is for them to maintain the current approach and ward off pressure form the government," said Societe Generale analyst Phoenix Kalen.

Noting that the lira had recovered some of its early losses, Kalen added: "People were concerned that the central bank would be pressured to do faster (policy) easing than might be prudent but the market does want to believe in the bank's credibility."

Investors have been returning to Turkish stocks and bonds as the lira stabilised and given the central bank's decision to abandon unorthodox policies, but many remain worried.

"The Turkish central bank had been talking about unorthodox policies and now that's completely out of the window. They've got themselves ahead of the curve and have flexibility to adjust," Barings Asset Management portfolio manager Matthias Siller said.   Continuación...