Bloomberg News

Lira Gains as Central Bank Reduces Funding Via Repo Agreements

February 15, 2012

Feb. 15 (Bloomberg) -- The lira strengthened for the first time in six days after the Turkish central bank reduced the amount of loans available in one-week repurchase agreements at its lowest 5.75 percent lending rate.

The currency appreciated 0.1 percent to 1.7670 per dollar as of 5:19 p.m. in Istanbul, increasing its gain this year to 7 percent, the third highest among emerging markets in Europe, the Middle East and Africa.

The central bank reduced lending at its lowest 5.75 percent benchmark interest rate to 14 billion liras during Feb. 13 to Feb. 15, down from 21 billion liras last week, pushing the overnight repurchase agreement rates on the interbank market to 7.6 percent today from 6.6 percent two days ago, the lowest since October.

“Reduced liquidity in weekly repo auctions will mean that banks will have to borrow from interbank money market at increased costs,” Ali Cakiroglu, an Istanbul-based strategist at HSBC Private Bank, said. “This may mean relatively less pressure on the lira.”

The lira weakened 18 percent last year in the biggest decline worldwide as the central bank reduced rates to a record low of 5.75 percent in August to stimulate the economy and guard against a probable recession in Europe, which buys roughly half of Turkish exports. The central bank almost doubled lenders’ borrowing costs in October and sold dollars directly in the markets after the lira’s slump pushed inflation to 10.5 percent in December, almost twice the bank’s target of 5.5 percent for 2011.

Yields on the benchmark two-year debt rose seven basis points, or 0.07 percentage point, to 9.35 percent.

--Editors: Ash Kumar, Linda Shen

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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