Bloomberg News

Lira Rebounds After Bank Lends Cash at Higher Rate, Sells Dollar

December 30, 2011

Dec. 29 (Bloomberg) -- The lira rebounded after the central bank increased the annual rate it charges lenders for weekly borrowing to 10.63 percent from 5.75 percent and continued to sell dollars.

The lira strengthened 0.3 percent to 1.9163 per dollar at 5:03 p.m. in Istanbul, paring this year’s losses to 19 percent, the worst performance among more than 20 emerging-market currencies tracked by Bloomberg. Yields on benchmark two-year bonds fell for the first time in four days, declining nine basis points, or 0.09 percentage point, to 10.98 percent, a Royal Bank of Scotland Plc index of the securities showed.

The central bank in Ankara lent 15 billion liras in a one- week repo auction at 10.63 percent after receiving bids for 58.2 billion liras. It also sold $150 million in its daily dollar auction, the same as yesterday.

“The amount and rate in the one-week repo auction were positive,” Ugursal Onder, a fixed-income analyst at Is Investment Securities in Istanbul, said in a phone interview. “The bank’s dollar sale was also in line with its strategy for ‘exceptional’ days. These moves helped to normalize the market after yesterday’s volatility.” A decline in Italy’s borrowing costs at today’s auction also supported the recovery in Turkish markets, she said.

Governor Erdem Basci said yesterday the central bank may stop charging 5.75 percent for its weekly repurchases and, instead, lend at higher rates on “exceptional” days. It will seek to influence the exchange rate by how it provides funding to banks, deciding on its policy daily, Basci said. The bank will also offer more than the targeted $50 million in daily dollar auctions on “exceptional” days under a plan which will continue until the next monetary policy committee meeting on Jan. 24, he said.

The lira weakened to a record low of 1.9219 per dollar yesterday and benchmark yields jumped to the highest since July 2009 after Basci’s comments raised uncertainty over monetary policy.

--Editors: Ash Kumar, Linda Shen

To contact the reporter on this story: Aydan Eksin in Istanbul at aeksin@bloomberg.net

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net


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