Markets jump on bets governor switch won’t derail bank policy

Turkey’s lira climbed the most in two weeks and bonds headed for a five-month high as officials planned to nominate one of Erdem Basci’s deputies to succeed him as central bank governor, boosting investor confidence in future monetary policy decisions.The currency strengthened as much as 1.1% against the dollar and 10-year government bonds rose to the highest level since November on a closing basis. Political leaders are planning to choose Murat Cetinkaya as central bank governor, state-run news agency Anadolu Agency reported later.The announcement eases concern that the end of Basci’s term next week will mean a shift from the current monetary policy. Turkey’s central bank lowered interest rates for the first time in 13 months in March amid pressure from government officials, including President Recep Tayyip Erdogan, to cut borrowing costs. Some investors had been concerned that Basci’s replacement would be more swayed by government pressure to prioritize growth over inflation targets.“The new governor coming from within the bank is very positive, since it eliminates the odds for some speculated, and questionable, names being selected,” Evren Kirikgolu, a strategist at Akbank TAS in Istanbul, said by e-mail. “It is thus reasonable to assume that the new governor will be more prudent than otherwise feared. The fact that Simsek announced it a week in advance also brings a touch of market-friendliness in the announcement.”The lira traded 0.9% higher at 2.8219 as of 3.43pm in Istanbul. The yield on 10-year bonds dropped 20 basis points to 9.78%. The Borsa Istanbul 100 Index jumped 1.6% to the highest level in a week. Akbank TAS’s 1.9% gain led the advance, followed by steel-maker Eregli Demir ve Celik Fabrikalari TAS’s 4.2% increase.Both Erdogan and Prime Minister Ahmet Davutoglu agreed to choose Cetinkayaas the next governor, a person familiar with the matter said, asking not to be named because the announcement hasn’t been made public yet. Choosing someone from within the central bank would “lower the chances of some tail-risk scenarios, like an overly accommodative stance in the short term,” Erkin Isik, a strategist at Turk Ekonomi Bankasi AS in Istanbul, wrote in an e-mailed note before the news report.