Bloomberg News

Lira Weakens on Bets Central Bank May Refrain From Intervention

December 14, 2011

Dec. 14 (Bloomberg) -- The lira depreciated for a third day on bets that the central bank may not intervene to arrest the currency’s decline after Germany rejected raising the funding limit for Europe’s permanent bailout mechanism.

The lira weakened 0.2 percent to 1.8854 per dollar at 5:50 p.m. in Istanbul. Yields on two-year benchmark bonds rose 1 basis point, or 0.01 percentage point, to 10.38 percent, according to a Royal Bank of Scotland Group Plc index of the securities.

The Turkish central bank sold almost $9.4 billion since Aug. 5, according to its own figures, to shore up the lira and rein in inflation. The Ankara-based bank sold more than $1 billion of its reserves, including about $500 million in direct intervention on Oct. 18, to arrest a slump in lira. The currency hit its historic low at 1.9096 on Oct. 4. The euro fell 0.6 percent against the dollar to $1.2965 at 11:21 a.m. in New York as German Chancellor Angela Merkel said “there are no easy and fast solutions” to the region’s fiscal crisis.

“The central bank cannot easily intervene directly again because it does not have that much foreign exchange reserves,” said Burcin Metin, chief currency trader at ING Bank AS in Istanbul, said in e-mailed comments. The lira may weaken to as low as 1.9050 if it breaks 1.8850 level against the dollar and would “definitely” move beyond 2.0 in 2012, Metin said.

The lira depreciated 2.3 percent this week, raising this year’s losses to 18.1 percent, the second-worst performance among more than 20 emerging markets tracked by Bloomberg.

Merkel’s statement that Germany will not raise the European Stability Mechanism fund “triggered this latest move,” Emir Baruh, a currency trader at Akbank TAS in Istanbul, said in e- mailed comments.

The Turkish central bank’s foreign exchange reserves fell to $85.5 billion on Dec. 2 from $86.2 billion on Nov. 25, the central bank data showed on Dec. 8.

--Editors: Ash Kumar, Peter Branton

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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