Turkish lira firms on hopes of better US ties and after Akbank loan

ISTANBUL: Turkey's lira strengthened 2 percent on Thursday, touching its firmest level in a month, on growing optimism about a rapprochement with the United States and after local lender Akbank said it had secured a critical syndicated loan.

The lira's rare advance - it is on track for its first positive monthly performance since January - comes in a torrid year that has seen it lose nearly 40 percent of its value, hit by concerns about President Tayyip Erdogan's control over monetary policy and the rift with Washington.

The sell-off has underscored the fragility of the economy, which economists have long said is too reliant on foreign debt. Banks are seen as particularly vulnerable, because of both their own external financing and the likelihood that the crisis will cause more firms to default on debts at home.

"There are expectations that bilateral relations will strengthen further with President Erdogan's visit to the U.S. and Germany, which began today," one banker said, adding that the central bank's 6.25 percentage-point rate hike and liquidity tightening have also supported the currency.

The lira firmed to 5.9850 to the dollar by 1503 GMT, 2 percent up on the day. Earlier it touched its firmest since mid-August.

Relations between Turkey and the United States have deteriorated in recent months over the trial in Turkey of a U.S. Christian pastor on terrorism charges. U.S. President Donald Trump has increased tariffs on Turkish steel.

Erdogan visited New York this week to attend a United Nations meeting, where he was photographed having a brief meeting with Trump, an exchange one Turkish official described as a "friendly chat".

'SMALL GESTURE'

"While the interaction was brief, one should not underestimate the importance of it. Even a small gesture may prove crucial," Piotr Matys, an emerging markets forex strategist at Rabobank, said in a note to clients on Wednesday.

Erdogan arrived in Germany for a three-day state visit on Thursday, aiming to repair strained political and commercial ties.

Amid the lira crisis, Turkey has attempted to calm financial markets, most notably with this month's massive interest rate hike, and then the government's "new economic programme" - which sharply cut growth forecasts and promised fiscal tightening.

But investors have remained wary, particularly given concerns about the banking sector.

On Thursday Akbank, the fifth-largest bank by assets, said it secured a $980 million, one-year syndicated loan.

While the terms of the loan were costly - it agreed to double the premium paid on a similar loan in March - the market greeted the financing as a positive, and shares of Akbank jumped nearly 5 percent.

Turkish banks traditionally agree two loans each year, in spring and in autumn. Akbank's refinancing normally closes in August and sets a pricing benchmark for other banks to follow.  This year, the refinancing round appeared to have been delayed as international lenders assessed the impact of the currency sell-off, bankers have said.