Turkey's Performance in 2007

The Turkish lira posted its biggest annual gain yet against the dollar in 2007 as the central bank kept interest rates three times higher than in the U.S. and Prime Minister Recep Tayyip Erdogan won elections in July. The lira rose a record 21 percent versus the U.S. dollar in 2007, more than any emerging-market currency Even the conflict with Kurdish rebels in northern Iraq has failed to dent optimism Erdogan would extend 23 consecutive quarters of economic growth.




The Turkish central bank kept its benchmark interest rate at 17.5 percent until September, before cutting it in each of the past four months by a combined 1.75 percentage points to 15.75 percent. The Fed's key rate is 4.25 percent, while the Bank of Japan's is 0.5 percent, making the lira attractive for the so-called carry trade, where funds are borrowed in low interest-rate currencies and used to buy higher-yielding assets.



Erdogan's Justice and Development Party won July's parliamentary elections with 47 percent of the vote, more than twice that of its nearest rival. The Turkish economy has doubled to $400 billion under Erdogan's government. The country attracted $20 billion in foreign investment in 2006.

Turkish bonds gained in 2007, with yields falling an average 4.58 percentage points, according to an ABN Amro Holding NV Index. Yields rose 7.36 percentage points last year.