Bloomberg News

Lira Drops to Lowest in 7 Weeks, Yields Pass 11% on EU Debt Woes

November 27, 2011

Nov. 25 (Bloomberg) -- The lira fell to the lowest level in seven weeks and bond yields surged past 11 percent as the European debt crisis worsens and the Turkish central bank forced banks to borrow at higher rates.

The lira weakened 0.5 percent to 1.8797 per dollar at 5:04 p.m. in Istanbul, the lowest since Oct. 5. Yields on two-year benchmark bonds rose as much as 41 basis points to 11.11 percent, the highest since July 2009, before rising 19 basis points to 10.89 percent.

“The debt crisis and risk-off sentiment is affecting everything, everywhere,” Selim Gulkan, a fixed-income trader at Turk Ekonomi Bankasi AS in Istanbul, said in e-mailed comments. “The central bank is clearly unhappy with this as it jeopardizes their inflation target so they’re squeezing the liquidity by decreasing the amount they lend at the weekly auction at 5.75 percent, making banks borrow on the overnight market at 12 percent, and that naturally puts pressure on bond yields.”

The central bank is seeking to support the lira and slow loan growth that has helped widen the current account deficit to a record, spurring inflation. European Union Economic and Monetary Affairs Commissioner Olli Rehn said it looks like contagion is spreading to core countries.

Inflation accelerated to 7.7 percent in October from 6.2 percent the previous month, the statistics office said on Nov. 3. The central bank said today it would lend banks 8 billion liras at the benchmark one-week 5.75 percent rate. It may later announce further overnight lending at 12 percent.

--Editors: Ash Kumar, Linda Shen

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

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


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