Bloomberg News

Lira Rebounds From Record Low on Biggest Dollar Sale in 2 Months

December 20, 2011

Dec. 20 (Bloomberg) -- The lira rebounded from a record low closing level yesterday after the central bank sold the largest amount of dollars since Oct. 24 and offered to sell as much as $1.7 billion in the next two days to stem the currency’s fall.

The lira strengthened 0.6 percent at 1.8937 per dollar at 3:18 p.m. in Istanbul, after the bank sold $350 million, the maximum it offered to sell today. Bids in the auction were $608 million. The bank also offered to sell a maximum of $1.7 billion on Dec. 21 and Dec. 22.

With the exchange rate against the dollar "coming close again to its year high, the Turkish central bank had to act,’’ Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt, said in e-mailed comments. “Obviously, such a severe depreciation poses great inflation risks.”

The currency reached a historic low at the end of trading yesterday, closing past the 1.9 threshold, after the central bank sold just $100 million out of an offer of as much as $150 million. The bank has sold about $10.2 billion since August to shore up the lira and contain inflation.

The lira lost 18 percent this year in the second worst performance among more than 20 emerging market currencies tracked by Bloomberg as the central bank kept the benchmark interest rates at a record low and a record high current-account deficit and European debt worried dented investor confidence in Turkey’s financial stability.

“The central bank now has to live up to the expectations and continue to sell relatively high amounts until year end, otherwise I would assume investors to be disappointed again, which would put pressure on the lira,” said Nguyen.

Yields on two-year benchmark debt jumped two basis points, or 0.02 percentage points, to 10.48 percent, a Royal Bank of Scotland index of the securities showed.

--Editors: Linda Shen, Ash Kumar

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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