Bloomberg News

Turkish Swaps Rise Seventh Day on ‘Rate Hike in Disguise’

October 21, 2011

Oct. 21 (Bloomberg) -- The cost to exchange lira payments for dollar payments in the next two years rose to an 11-week high after Turkey’s central bank raised its overnight lending rate yesterday.

Turkey’s two-year cross currency swaps rose for a seventh day, the longest streak of gains since October 2009, adding 27 basis points, or 0.27 percentage point, to 7.59 percent by 4:29 p.m. in Istanbul.

The central bank yesterday left its benchmark interest rate unchanged at 5.75 percent and increased the overnight rate to 12.5 percent from 9 percent and dropped wording from earlier statements that it may need to ease monetary policy. The swaps rose the most yesterday since at least 2005 when Bloomberg started tracking the data, after the announcement.

“Liquidity in the derivatives market is drying up,” Ozhan Antero Atilla, an emerging-market strategist at Danske Bank A/S in Copenhagen, said in an e-mailed response to questions. “Although a more hawkish tone was expected, a ‘rate hike in disguise’ did indeed surprise the markets with a lot of people simply taking off their offers.”

Governor Erdem Basci cut the benchmark rate by half a point on Aug. 4, concerned that the European debt crisis will undermine economic growth. The lira has fallen 7.7 percent against the dollar since then, adding to a surge in inflation from tax increases. The bank spent more than $1 billion on Oct. 19 trying to arrest the currency’s fall.

The bank’s rate decision introduces “some tightening bias,” Basci said at a panel in Warsaw.

Two-year bonds fell for a third day, with yields rising 33 basis points, or 0.33 percentage point, to 9.47 percent, the highest intraday level since May 2010, a Turk Ekonomi Bankasi index of the securities showed.

The central bank’s policy added “risk premium in the face of external deterioration and simply soured the appetite for lira-denominated assets,” Atilla said.

--Editors: Ana Monteiro, Alex Nicholson

To contact the reporter on this story: Selcuk Gokoluk in Istanbul at

To contact the editor responsible for this story: Gavin Serkin at

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