Bloomberg News

Lira Falls Most in Week After Central Bank Offers Fewer Dollars

October 11, 2011

Oct. 11 (Bloomberg) -- The lira fell the most in a week against the dollar after Turkey’s central bank sold $140 million for liras in a daily auction, the smallest sale since the currency fell to a record low last week.

The lira dropped 0.8 percent to 1.8435 per dollar at 5:43 p.m. in Istanbul. Yields on two-year benchmark bonds rose 12 basis points, or 0.12 percentage point, to 8.45 percent, according to a Turk Ekonomi Bankasi index, in their first advance in five days.

The Ankara-based bank got $610 million of bids at the daily auction today. The bank earlier announced it would sell as much as $350 million.

“The central bank’s decision is a one-way ticket decision, meaning that the bank should go to the end of the road and be aggressive,” Ozgur Altug, chief economist at BGC Partners in Istanbul, said in an e-mailed report to clients.

The bank has sold $4.8 billion since it embarked on dollar sales auctions on Aug. 5 to shore up the lira after it cut benchmark interest rates at an emergency meeting. Turkey’s foreign currency reserves were $87.5 billion in the week ending Sept. 30.

‘Test’

“If the central bank quits before achieving stability in the foreign-currency market, markets would prefer to test the central bank’s ammunition,” said Altug.

The bank sold a record $750 million on Oct. 5, after the lira slid to an historic low of 1.9096 the previous day. It has slumped 16 percent this year, the second-worst performer among 25 emerging market currencies tracked by Bloomberg after the South African rand.

“It seems that the central bank will not make much effort to drive the lira higher from here, even if it wants a stronger lira,” Baris Karaayvaz, a currency trader at Turkiye Garanti Bankasi AS, said in an e-mailed response to questions before the auction result was announced. “It does not make sense for the bank to offer $1 billion when the lira trades at 1.83 against dollar.”

Traders paid 5.4 percentage points more for the right to sell the lira in three months than to buy, according to so- called risk reversal rates compiled by Bloomberg. The premium to insure against further depreciation in the lira rose for the first day in five.

--Editors: Steve Bryant, Ben Holland, Mark Bentley.

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at sgokoluk@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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