(Bloomberg) -- The lira’s losses this week are putting Turkey’s currency on course for its worst weekly performance since July 21 as higher-than-expected inflation, combined with concerns over dwindling reserves, weigh on the currency. The volatility is expected to remain high this month in the runup to local elections. 

The Turkish currency weakened 0.2% on Friday to 31.9536 per US dollar, extending this week’s losses to 1.9%. The one-month implied volatility on USD-TRY currency pair, an expected gauge of volatility, has climbed to the highest level in more than four months this week and is hovering near that level. 

The lira had been on a steady and gradual depreciation track through most of February after the steep surge in the USD-TRY pair last year. The losses have accelerated this month as declines in foreign reserves and worse-than-expected consumer-price inflation have put additional pressure on the currency ahead of municipal elections on March 31. That pressure has prompted Turkey’s central bank to adopt additional tightening measures, including temporary limits on credit growth. 

Turkey’s Treasury and Finance Minister Mehmet Simsek cited “some uncertainty” before the elections in an interview with CNNTurk on Thursday, while saying the country will move to an environment of lower political uncertainty after the vote. 

Market Metrics

• 5-year CDS flat at 319bps
• Borsa Istanbul 100 Index +0.3% to 9,079 points
• U.S. Treasury 10-year bond yield -1bp to 4.07%
• Brent crude +0.6% to $83.41 per barrel

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